The Hidden Formula for Building Great AI Startups

Metatrend #2: AI & Quantum

What it is

What makes an AI startup succeed isn’t the tech—it’s the team. It turns out, the most successful companies aren’t always the ones with the best product. Instead, they’re the ones with the best teams. Teams who trust each other and can adapt rapidly. Dave Blundin (Managing Partner of AI venture fund, Link-XPV) quotes legendary VC Fred Wilson: “If they pass the test of being best friends and technical co-founders, I invest—even if the idea is stupid—because their idea will change, but the people won’t.”

Why it matters

Look at Cursor, the fastest SaaS growth in history. $500M ARR in under three years, blowing away Anthropic, Uber, and OpenAI. Check out the chart above... those numbers are exponential.

Here's what makes Cursor extraordinary: 3 - 4 best friends from school. Brilliant, but they'd never operated a company before. Yet they built something groundbreaking with AI because they had that unbreakable bond.

Cursor, Scale AI, and companies like them are true Exponential Organizations (ExOs): they have an MTP, they're using community effectively, building developer communities with engagement levels that are phenomenal to watch.

The question is: How many Cursors are out there that will be built in the next couple of years?

I bet there are dozens... will you create one of them?

Here are four tips on how to build a billion-dollar AI company:

1. The Number One Failure Mode

When founders aren't deeply aligned, the first pivot often kills the company. That's the number one failure mode for startups: somebody bails because they can't handle the uncertainty. But they’ll succeed in the end if they commit and stick with it, together.

I remember the early days of Singularity University's Graduate Summer Studies Program (GSP). We put a hundred alpha males and alpha females into a room and said, "Find other co-founders amongst yourselves and start a company based on exponential tech." This was very different from Y Combinator (started roughly at the same time). In Y Combinator, the teams entered with preexisting relationships. In retrospect, the failure mode at SU’s incubator was predictable. There was no glue, no shared passion as these teams came together over the course of a few weeks, versus a few years.

In fact, the companies that did succeed in the GSP were the ones where founders became friends and stuck together through every pivot.

2. You Can't Buy Founder Chemistry

People ask, "Why should they be best friends? Why should they have a relationship spanning years?"

Here's why: Meta, Google, and OpenAI are raiding companies and stripping out talent. If you've started a company with some stranger and it's been six months, when someone offers you a huge signing bonus, you're going to leave.

But if you've started a company with your best friends—people with whom you have real history—you're not going to abandon them. That's critical.

Look at Zuck's AI talent poaching spree. Meta tried to buy Safe Super Intelligence (SSI) for billions but got rebuffed. Now they're throwing $100 million signing bonuses at executives like Daniel Gross and Nat Friedman. In the AI talent wars, you can throw money at researchers, but you can't recreate the magic of bonded co-founders building late into the night.

3. Ideas Pivot, But Relationships Last

Fred Wilson, the legendary VC from Union Square Ventures, has a simple philosophy: he backs teams of best friends who are technical co-founders. His logic is: even if the idea is terrible, he'll invest because great teams pivot fast, but you can't change relationships overnight.

Take Israel's startup ecosystem: five times higher success rate per capita than anywhere else. Why? The military service that predates most of the startups has created lifelong bonds. Marching through the desert, suffering together, appreciating college more, and then starting companies while still in school. They're older but more bonded.

4. A Test for Strong Relationships

Even if you haven't gone to school with your co-founders, there are ways to test compatibility.

Here's mine: People you'd sit next to on a 12-hour flight in coach. How would you feel when you get off that plane? Are you exhausted or energized? That's how it'll feel doing a startup together. If you're with the right people—those you click with—you'll come off energized after talking about everything under the sun for 10-12 hours.

The future belongs to those bonded teams who can pivot together, stick together, and build together.

Other Key Tech Developments This Week:

1

Isomorphic Labs prepares first human trials for AI-designed cancer drugs with goal to "solve all diseases"

2

Gene therapy restores hearing in deaf teenager and 24-year-old in breakthrough trial for older patients

3

AI helps couple conceive after 18-year struggle by finding hidden sperm in breakthrough fertility treatment

Until next time,

Peter