By SC Moatti
If your pitch nonetheless leads with “we use AI,” you’re describing infrastructure, not a enterprise. Consider that 97% of the merchandise nominated for this yr’s Products That Count Product Awards are deeply built-in with AI, highlighting the extent to which the times of AI as a differentiator are formally gone.
The actual moat traders are searching for at present is one thing many founders can’t determine: What will survive a well-funded competitor who may launch tomorrow with a greater mannequin.
The knowledge offers a transparent reply: When constructing is sort of free, the one moats that maintain are people who a mannequin can’t generate.
Two of them work with out requiring you to out-raise OpenAI. Two of them are traps. And one isn’t a sport most founders are taking part in.
Counter-positioning: The moat that prices nothing to defend
Counter-positioning is what occurs when a newcomer builds a enterprise mannequin so structurally totally different that the incumbent can’t copy it with out destroying their very own economics. Netflix versus Blockbuster is the canonical instance. Blockbuster may have matched the subscription mannequin, however doing so would have gutted late-fee income, which stored their shops alive. So they didn’t, till it was too late.
In the AI period, this energy is uncommon and underutilized. Only 5% of firms in our dataset leverage counter-positioning. Investors worth that shortage at a median enterprise worth of 5.3x per greenback raised — the best a number of of any energy within the evaluation.
The sample exhibits up in vertically built-in AI insurers that promote on to employers, a mannequin conventional brokers can’t replicate with out cannibalizing their very own relationships and underwriting margins. It exhibits up in AI-native income administration methods that might intestine the high-margin consulting income legacy distributors depend upon if these distributors tried to match them.
The incumbent sees the menace. They select to not reply. That rational inaction is the moat.
For founders, the diagnostic query is that this: Could a well-resourced incumbent copy your mannequin in the event that they needed to? The proper sign is answering “technically yes, but it would cost them more than it would cost us to build.”
Network economies: The moat that builds itself
Network economies come up when a product turns into extra beneficial to every person as extra customers be a part of. At scale, this tends towards winner-take-all outcomes inside the community’s boundaries, whether or not in geography, skilled context or business vertical. LinkedIn is the textbook case: More recruiters appeal to extra candidates, which in flip appeal to extra professionals, which in flip appeal to extra recruiters.
In our dataset, community economies seem in solely 5% of firms, however command a 4.2x a number of. That makes it essentially the most capital-efficient path to a powerful valuation premium out there to founders at present.
The B2B variant right here is especially underappreciated. Rather than particular person customers as nodes, the community connects firms: manufacturers to factories, advertisers to audiences, platforms to companions. Every new participant makes the community extra beneficial for each present participant.
The knowledge that accumulates throughout these interactions — costing, manufacturing cycles, viewers conduct — compounds in ways in which develop into progressively more durable to copy.
Getting either side of a two-sided market to commit concurrently is difficult. But founders who clear up the cold-start downside personal one thing {that a} well-funded competitor with a greater mannequin nonetheless can’t purchase.
What seems to be like a moat however isn’t?
At 44%, cornered assets like proprietary knowledge, distinctive IP and unique entry command the second-highest prevalence in our dataset. But in addition they have the worst a number of: 2.6x. Because traders have watched too many proprietary datasets get eroded by basis fashions and artificial knowledge, if a knowledge benefit doesn’t compound in ways in which get more durable to copy over time, it may’t be thought-about a moat.
Switching prices are essentially the most crowded energy at 37%, and appear to be a moat as a result of clients actually don’t go away.
But the price of constructing them creates an issue, as a result of the requirement for deep enterprise entanglement — baked-in instrumentation, institutional reminiscence, rearchitecture danger — means costly gross sales cycles earlier than the stickiness kicks in. The a number of is akin to community economies (4x), however the capital required to succeed in it’s roughly 10x greater. It’s a viable path for founders who construct a product-led progress movement to cut back that price, or who engineer a motive for customers to collaborate on the platform, changing switching prices into community economies over time.
Scale economies aren’t the sport most founders are taking part in. The median a number of, excluding OpenAI and Anthropic, collapses from 6.1x to three.2x, and 88% of the class’s capital belongs to these two firms. Believing your unit economics enhance with progress doesn’t equate to constructing a scale moat. The hole between the 2 is measured in billions of {dollars} that the majority startups won’t ever increase.
The solely query that issues
Every firm on this dataset has AI in its product. The ones commanding premium multiples have constructed one thing beneath the AI {that a} mannequin can’t generate by itself.
That one thing is structural. It lies within the enterprise mannequin design or the community structure, quite than mannequin high quality, characteristic set or knowledge quantity. It solutions the query each founder ought to have the ability to state in a single sentence: What about my enterprise would survive a competitor who begins at present with extra capital and a greater mannequin?
If you possibly can’t reply that query, you’re constructing a product. The founders commanding 4x to 5x multiples are constructing an influence.
SC Moatti is the founding managing companion of Mighty Capital and board chair at Products That Count. As a enterprise capitalist honored on the Kauffman Top 30 Index and Power100, she invested in pioneering firms together with Amplitude, Netskope and Groq. She earned a status for growing merchandise that folks love through the cloud and cellular period, when she constructed merchandise that billions of individuals use at Meta and Siebel Systems, received business awards and nominations from The Wall Street Journal and the Emmy’s Foundation, and wrote an award-winning bestseller on what makes an amazing product. She holds a grasp’s in electrical engineering and a Stanford MBA, and is a Kauffman Fellow and member of Young Presidents Organization.
(*2*)
