The startups are thriving
Startups today aren’t competing with historical metrics to win fresh capital
Welcome to Cautious Optimism, a newsletter on tech, business and power.
Friday! The newsletter has been gloomy this week, so our main focus today is to detail the remarkably high growth rates that we’re seeing from startups. It will be a blast. Before that, we’re taking a quick look at President Trump’s executive order blocking state-level AI regulations and the Pax Silica. To work! — Alex
📈 Trending Up: Buying Congress … prediction markets’ legal muscle … OpenAI … justice … AI podcasting … legal challenges to Australia’s social media ban … chip subsidies in China … journalists on X?
Speaking of AI podcasting, I find myself using Huxe at times when making my first morning coffee. Not sure if that counts as a ringing endorsement, but there you have it.
📉 Trending Down: Future rate cuts … Broadcom, after earnings … app store rent-seeking? … Chinese Internet influence? … Shein, Temu … US AI dominance?
Things That Matter
MAGA fails to neuter Trump’s AI policy: Efforts by “MAGA populists” to blunt the impact of the Trump administration’s effort to undermine state-level AI legislation have failed, and POTUS signed the executive order yesterday.
Here’s what you need to know about its contents:
This is an attempt to shape future legislation: The order states that within 90 days, the executive branch will “prepare a legislative recommendation establishing a uniform Federal policy framework for AI that preempts State AI laws that conflict with the policy set forth in this order.” The goal here is to set the terms for Congressional debate, and guide AI regulation in a manner that the industry will find palatable.
It’s a broadside against state-level AI regulations: The EO sets up an “AI Litigation Task Force” under the Attorney General, whose “sole responsibility shall be to challenge State AI laws inconsistent with the policy set forth” in the order. Further, the Secretary of Commerce has 90 days to “publish an evaluation of existing State AI laws that identifies onerous laws that conflict” with the order. Finally, the executive branch may limit “remaining funding under the Broadband Equity Access and Deployment” program to states that do not play nice.
David Sacks is in the driver's seat: The AI Litigation Task Force will consult with Sacks, the Special Advisor for AI and Crypto, and the Commerce Secretary will consult with him, too, about which state-level AI rules fall afoul of the EO. Sacks will also help determine which states won’t get grants for not complying. He’ll also get consulted by the FTC over AI policy, and will help “jointly” prepare the previously-mentioned “legislative recommendation.”
In short, the EO sets a framework for attacking states that regulate their economies, and a former venture capitalist and AI investor is setting the tone and direction of the Federal pushback against federalism.
I remain uncertain whether the Commerce Clause holds sway over the 10th Amendment in the case of state-level AI regulations. The courts will let us know, in time.
If you’re of the opinion that states are being meddlesome, this is all very good news. But if you think that the Executive Branch has been bought by the tech industry, this is all very bad news. What will prove very interesting is how stringently GOP-governed states that have already passed their own AI regulations push back against the White House.
The current incarnation of Trumpism is rather friendly to the tech industry, but some Republicans are quite skeptical about large technology companies. That means GOP folks in favor of the AI executive order may face criticism from inside their own party in 2028 (more here).
Music videos are back, baby: Spotify has officially launched support for music videos in its desktop app, allowing you to air guitar along with your favorite bands. Very good, very fun and very distracting. I love it!
Pax Silica: We’re living under the Pax Americana today, and will continue to until someone sinks one of our aircraft carriers. But the State Department and a number of allied nations would like another pax, please.
Dubbed Pax Silica, Japan, the Republic of Korea, Singapore, the Netherlands, The United Kingdom, Israel, United Arab Emirates, Australia and the United States are banding together to “jointly address AI supply chain opportunities and vulnerabilities.” This includes rare earths and chip fabrication, and they promise to work together and invest across national borders, protect technology from “countries of concern,” and improve hardware and software links like fiber-optic cables, data centers, foundational models and applications.
No Latin American or African countries made the cut.
This is a pretty good idea, but I would have liked to see more European countries in the mix given our long-term strategic compatibility.
Regardless, the idea of building a Coalition of the Free around AI that’s contra to the Russia-China axis makes good sense
The startups are thriving
Back in November, we cooked up a list of startups that had joined the $100 million annual recurring revenue (ARR) or annual run-rate revenue (ARR, I know) mark. Those 11 names were AI-heavy, as you might imagine, and included mostly known names.
But we have a lot of impressive startups that aren’t yet trumpeting nine-figure revenue. Here’s a handful of recent startup growth news that I think is worth meditating over:
Serval, which builds AI agents for IT tasks, just raised a $75 million Series B at a $1 billion valuation. The round, which Serval says was pre-empted by investors, was based on the company growing 500% since its Series A, which First Round investor Bill Trenchard says took 90 days.
Runware, a startup offering API access to a host of AI models while handling compute needs behind the scenes, recently raised a $50 million Series A after increasing “revenue by 10x” since Q3. That’s fast, no matter the starting point.
Rillet, which is building an AI-native ERP, says it “doubled its ARR” in the 12 weeks preceding its $70 million Series B. The round came just 10 weeks after it raised a Series A.
Yoodli is fusing AI into corporate training, and it raised a $40 million Series B earlier this month at a valuation that TechCrunch pegs at more than $300 million. Underpinning the quick Series B (Yoodli raised a Series A in May) was recurring revenue growth of “900% over the last 12 months.”
Fal, a startup offering media-generating AI models to companies, says it more than doubled its annualized revenue to over $200 million in October from May, when it reported $95 million in annualized revenue.
We’re not in Kansas anymore.
Startups used to try to follow a model called T2D3, or triple, triple, double, double, double. The idea was that startups should try to triple their revenue for two consecutive years, and then double for three more in hopes of getting the top line to $100 million, and thus become eligible to go public.
In the AI era, you probably need to grow a lot faster than that to attract top-tier investors. Why? Because the best startups are growing faster than ever before — even the major AI labs are setting records despite their enormous revenue bases. Startups today aren’t competing with historical metrics to win fresh capital; they’re racing against a new breed of company that is growing leaps and bounds faster than their older peers.
Best of luck to everyone raising. May your ARR double by the time you take your next breath!