1Mby1M Virtual Accelerator AI Investor Forum: Warren Packard, AI Fund (Part 5)

Sramana Mitra: Let me point out a couple of things that I’m hearing here that are going to be really interesting for our audience. Number one is, AI is calling to question pricing in enterprise software right now in a big way, right?

Around 1999 as the cloud computing wave started, goodies like the subscription revenue model, MRR, ARR, and predictable revenue came about. Around 2005, it kind of settled into subscription revenue models. Everybody who was on licensed software models switched to subscription revenue, and Wall Street settled into subscription revenue. The whole industry kind of organized itself around subscription revenue software as a service.

But with AI, that model is being challenged with usage-based pricing and outcome-based pricing. All kinds of things are being considered right now. As you work through your own pricing models, think about all of that and think about ROI-based pricing that may not be subscription pricing, it may be something else.

There is also a big trend going on right now of human in the loop services. If you’re providing services around AI and you can charge on ROI-based pricing models, those would be incredibly lucrative, multi-million dollar contracts solving narrow enterprise use cases that hit directly at ROI effectively.

So, we’re coming back to what you said about your model.

One question that is central to your model is the question of ownership. I don’t know how much time you spend on LinkedIn, obviously, we are all spending a lot more time on LinkedIn these days. It has become the global water cooler, so to speak, right?

Warren Packard: Absolutely.

Sramana Mitra: The discussion about ownership is very present in entrepreneur minds right now.

People are realizing that the earlier you start giving up equity, the more equity you give up and end up with very little by the time you hit a Series C company or a Series D company. People are starting to become more conscious. Now, in your model, the entrepreneur is being recruited. So, what kind of ownership structures are they being recruited with?

Warren Packard: I’m glad you asked that question because this is so important. At AI Fund, we can’t just grab equity because we founded the company, and we brought in the CEO. We can’t just say, “Oh, we want half the ownership of the company or 60% of the ownership of the company because we started it.” We just can’t do that. That would break the cap table and break the company.

So, we always look at ourselves as a minor co-founder of the company. That founder-in-residence who comes in and works with us always gets much more equity than we get. That one individual gets much more equity than we get. In fact, just very bluntly, we get half the equity that that founding CEO gets. Then on top of that, there might be equity for another full-time co-founder, let’s say a CTO who comes in. And then there will always be an option pool.

So, we are out of the gate a minority, common shareholder, common founder, because if we took more than a small minority stake in the company, it just wouldn’t work going forward.

That’s why we need to be able to bring in a founder in residence who feels ownership for the company, who is the largest shareholder by far, and feels like this is their company.

This segment is part 5 in the series : 1Mby1M Virtual Accelerator AI Investor Forum: Warren Packard, AI Fund
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