Navinchada, the 55-year-old managing director of Silicon Valley venture Mayfield, has placed a big bet on AI's ability to transform heavy industries, including consulting, law and accounting. Veteran investors, including victory, including Lyft, Poshmark and Hashicorp, were recently debated in TechCrunch's rigorous evening at Menlo Park. I believe why “AI teammates” can traditionally create software-like margins in the labor-intensive sector. Material can be more difficult than Silicon Valley would expect. The conversation is lightly edited with length and clarity.
You think law firms, consulting companies, accounting services (collectively the $5 trillion market) will be completely rethinked by AI-first companies operating on margins like software. Prove that. What have you seen beyond your PowerPoint presentation?
I think the advantage of a company that has been doing business for over 50 years is that it has seen all sorts of trends, from mainframes to minicomputers to the internet, mobile, cloud, social, and today's age of AI. The example I give is that this concept of business came in the late 90s. That's what I can't survive if I'm just brick and mortar. You need to click to make it mortar. After that, outsourcing became a trend, and offshoring became a major trend. Software services companies could not be built without the presence of India and emerging markets. The same thing happened in the supply chain and manufacturing. China and Taiwanese roses. So, what is this new era with AI? Clearly, AI is 100 times more powerful, and AI teams up with humans. And I think so, and that would help you rethink your business.
Many of the repetitive tasks are done by AI…and there are two models. One is that you grow organically. The second is that you grow inorganically. . .
Can you give us a specific example of how this works?
What can LLM or AI do? Well, suppose I have to implement Salesforce. Who wants to do the job? A human comes in and says, “I'm your client manager. You need to implement Salesforce.” It's a set of the same things. You can do that using AI as a horse. If AI can't, put humans in a loop.
Now, if you suddenly start these kinds of things, there is less work done by humans and more work done by AI. [customers] Only when paying AI only [they] Please use it.
And the market [entry] You shouldn't chase [big consulting and IT companies] Like Accenture, Infosys, or TCS. They chase after the ignored masses. There are 30 million small businesses in the United States, and there are 100 million people around the world who can't afford knowledge workers. We provide services as software. They said, “I need a receptionist. I need a scheduler. I need someone to build my website…” [create] Startup fundraising is a combination of humans [involvement] For negotiation. You don't compete with world accents. Chasing fragmented markets. Here, instead of charging per hour, instead of charging the contractor per month, you charge per event.
So, results-based pricing rather than time-based billing.
This is based on the outcome, yes. . . Cloud billing is like that. That's what electricity is like. . If 80% of the work is done by AI, you can have a total margin of 80% to 90%. Humans can still have a margin of 30% to 40%. You can blend 60% to 70% margins and generate 20% to 30% net profit. And trust me, most service companies make money. That's not the case with high-tech companies. They live in venture money and then in public market money.
A few weeks ago I led Series A for a company called Gruve. This is AI Tech Consulting Startup. What did you see in your early customer pilots?
I think this is where the combination of inorganic and organic occurs. [Gruve was founded by] A very successful founder who previously ran two service companies [and] Bootstrapped, earning $500 million in revenue and $5-100 million in profits each. This time they first said, “What do we know? We know security.” So they acquired a $5 million security consulting company. [that offers managed security services]. And they said, “Let's look at people. All growth from this point happens through AI.” And they grew from that. [$5 million in revenue] Up to $15 [million in revenue] Six months later. They literally have a total margin of 80%. Based on the results. Customers love it. Cisco loves it. They say, “Hey, I'm not hacked. Why am I paying all these security personnel?” If you outsource, [a vendor has traditionally charged] $10,000 a month. [Gruve] say,” [You pay us] zero. If you are hacked, if there is an event, if I see it, you will pay me. ”
Can't companies like McKinsey buy these AI features? They have big companies that they don't want to lose.
Yes, I think it's what happens. This is where the innovator's dilemma appears. When enterprise software companies were permanent licensed companies, when they saw SaaS Companies appearing, they didn't want to adopt them. [the model] because [SaaS companies] I recharge my company every month, not five years ago. Enterprise companies have charged a 20% maintenance fee. It was difficult [for them] To get off that medicine and say, “Oh, I'll charge you every month.” Innovating the business model was important. They didn't do that. So McKinsey and Accenture will be busy serving clients with so many dislocations [which is why I advise founders to] They chase after the ignored masses. Understand unique market strategies and serve someone [an Accenture can’t come down market to serve].
But they will be rethinked too. So these small companies that don't compete with them today mark my words. Ten years later, they will compete with them. And those big companies – McKinsey, BCG, Accenture, TCS, Infosys – all have the innovator dilemma. [and are asking themselves]: When do you do that? [When do I switch to an outcome-based AI model?] Because as a public company, my revenues will decrease from predictable revenue to utility-based revenues.
Last fall, I cut $100 million from my recently raised funds to focus on being an “AI teammate.” What makes AI tools with your true AI teammates?
There are many buzzwords in the industry. First, it was copilots, then AI tools, AI agents, AI teammates. Therefore, Mayfield's paper is that AI teammates are digital companions who work with humans on shared goals and get better results. The technology that it may be built on could be agent technology or co-pilot. The manifestation of this is, “I am a HR teammate. I am a sales engineering teammate.” The purpose is not to trade. The goal is to form a team and work together.
When people started talking about their teammates and assistants, it sounded novel, but I wonder if it would look cool as more people lose their jobs. Is there a marketing issue in Silicon Valley?
Absolutely right, and I think we need to sugar coat it. You need to deal with it head on. . . Yes, there is work evacuation, but humans are smart. They are jockeys. The horses here are AI. We rethink ourselves. We reinvent ourselves. Today, the focus is on cutting costs, but we will find ways to expand the market, increase revenue. This happens with every technology wave that comes. When Microsoft Word came to PC on desktop, people thought [executive assistants] It had gone out of business. Then Excel came and the accountant who did the calculations – everyone thought he was out of business. I saw the same thing on Uber and Lyft. People thought taxi drivers would disappear. But what happened instead? The market has expanded.
My paper is how there were no landlines in emerging markets like India, China and Africa – you couldn't dig copper, so they became wireless, mobile phones – that's what happens in many markets. AI does a job that humans cannot even serve their customers. So for the long term, I'm very, very bullish. In the short term, there is pain, but no pain or profit.
Speaking of coding, the recently announced “Vibe Coding” contract focuses on a six-month Israeli company with a monthly revenue of 250,000 users per month and a six-month Israeli company that reached $200,000. Another Israeli company, Wix, bought it for $80 million in cash. Does that mathematics make sense to you?
In fact, mathematics has no meaning these days. We are in the age of AI. I don't know what will happen. I'm surprised at $2.4 million [annual recurring] Revenues are only sold for $80 million. You thought it would be $800 million, right? [Laughs.] In today's world, you don't know. It's the market.
How do you invest in that market?
It's where secret recipes come from people whose investors are proven. They cracked the code. It's not science. It's art. It's like 10,000 hours [rule]:The more you practice this, the better you will be. And companies that have been around for 50 or 60 years – we've seen all sorts of bubbles.
The number one rule is to have your own North Star. FOMO is for the sheep, so there is discipline and there is no FOMO. And if you have these two or three things, then there is no fear of your own strategy, [you’ll do well]. Remember one thing: For people [in this audience] Who is VCS and we are involved in the financial management business. It's not about collecting logos. We take a little money and make them bigger.
In this part [of the cycle]you can make a lot of money. But I think 80% of people will lose money. They don't know what they're doing.