Capital Chronicles #32

Hello there! Welcome to Capital Chronicles, saving you hours every week with ~2-3 minute summarised insights from the best venture builders, investors and capital allocators out there.

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🛠️ On venture building…

Two rules for organisational design: design for conflict and ensure value-add (Kellblog): instead of obsessing over span-of-control, design your organisation for the conflicts you want to hear about, in a way that fosters debate. To avoid communication breakdown as you scale, build a culture of transparency, run extended QBRs and invest in robust reporting. And don’t put an executive in charge of a business unit unless they can add value to it. This will defeat empire-building, encourage learning and attract stronger department heads.

Design for the right conflicts and value-add using Dave Kellogg’s approach to organisational design.

🧭 On venture investing…

Five differentiators for emerging AI-native applications: Design, Data, Domain Expertise, Dynamism, and Distribution (Sapphire Ventures): investment for AI-native software applications hit $8.5B YTD in 2024. Given the increasing competitive intensity and rapidly decreasing half-life of feature differentiation in the AI-era, companies will need to differentiate their applications across these five key dimensions to establish durable category leadership. The real breakthroughs will come from companies that blend these dimensions in novel ways.

Use Sapphire Ventures’ 5D framework to evaluate companies building applications with AI.

📖 Learning resource…

Five steps for unlocking AI in GTM (Insight Partners): (1) Define the goal: pick an objective, strategy, and set measurable goals. (2) Identify how AI can help: design AI's role in the existing workflow, focusing on its strengths in handling repetitive or data-intensive tasks. (3) Select the right AI: consider entry points, set requirements, and evaluate vendors. (4) Integrate: plan for change, architect agency for AI, and build for flexibility. (5) Manage change: redefine staff roles, upskill workers, adapt structures, promote AI literacy, and set governance policies.

Cross the scalability gap with Insight Partners’ guide for AI in GTM

📊 Market insight…

GenAI pilots are giving way to production for enterprises in 2024 (Menlo Ventures): AI spending increased 6x+ from $2.3b in 2023 to $13.8b in 2024, and 40% of AI investments now come from permanent budgets. Organizations typically deploy 3+ foundation models, relying more on RAG (from 31% to 51% YoY) than fine-tuning (~9%). Top use cases include code copilots (51% adoption), support chatbots (31%), and enterprise search (28%). Top implementation challenges include costs (26%), data privacy (21%), and disappointing ROI (18%).

Get more insights on GenAI spending trends from Menlo Ventures’ survey of 600 enterprise IT decision-makers.

🎲Lucky dip essential reads…

• Growth reacceleration holds steady for Q3CY24

• How Do You Steal Customers From the Leader in the Space?

• My favorite benchmarking reports

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Josh