1Mby1M Virtual Accelerator AI Investor Forum: Ray Wu, Alumni Ventures AI Fund (Part 3)

Sramana Mitra: Interesting. There is a completely opposite trend, but it’s kind of similar. Y Combinator put out the types of companies they’re looking for a few months ago. One of the types of companies is full stack AI.

So, the counterpoint of this is that one, you take something that is existing and built up, and then you re-engineer and do digital transformation or AI transformation on it. Here, we’re talking about something that is built from scratch, but to do a full stack company, like a new insurance company or different kinds of companies.

Have you seen that in your portfolio?

Ray Wu: Yes, we have, actually. There’s another company called Corgi, a full-stack AI insurance carrier. The company is not that visible yet but is in the Bay Area.

So, we’ve started to see more of this kind of full stack empowerment that goes beyond just selling the software. Traditionally, it’s very horizontal. All our scalability is around how to sell the software into traditional businesses and enable them to do more.

With AI, this becomes almost like virtual employees, you can empower and scale this very quickly. So, the new model becomes one where, internally, there’s a lot of AI service agents. It doesn’t matter what that agent is—it could be customer service, workflow process enablement, or sales agents doing SDR-type tasks.

Then you have a service partner, which is a human, still doing the high-touch models. I think we are going to see a lot of these kinds of things in high-cost areas—legal, accounting, tax. We’re seeing quite a few of these different cases popping up in addition to some of the examples I just mentioned.

Sramana Mitra: Now, what does a full stack company like this insurance company, Corgi, look like? Does it start with a very large amount of funding? What is the financial structure of a company like that you’re seeing?

Ray Wu: Well, it doesn’t really need to be a lot of funding, but it does take more to build. So, we’re experimenting with different investment themes as well.

Traditionally, if you think about who comes into this space, it’s mainly the PE guys. They have the financial engineering and operational experience. This model needs to add in the technology component. It requires technological and operational expertise to run and roll out the company, and the financial expertise to construct a business model that makes sense. This is more of an extension beyond full stack.

There are two models, right? You mentioned full stack AI companies, and this is almost the extreme—where you take the models into operation scaling. If you look at traditional PE models, they don’t apply here as much. This is more like a venture-debt-enabled equity services model.

Sramana Mitra: No, I’m not talking about the existing company model. It’s more of an AI takeover model. You have to do what a McKinsey or a BCG does—to completely reinvent the workflow and put AI in every step. That’s a different model. Of course, if you’re buying an existing company, that does need a lot of money. But if you’re trying to build a new insurance company from scratch, that is also an expensive proposition. That’s my question.

Ray Wu: Yeah, I think there are certain areas where—for example, insurance is state by state—so you do need a license to operate. What Corgi has done is essentially bought an insurance agency that already had these license capabilities to operate across multiple states. So there’s always the infrastructure acquisition side, which, as you mentioned, is capital intensive and costly.

Sramana Mitra: Oh, I see. So, this is not being started from scratch. It is being done with an acquisition and then building on top of that.

Ray Wu: Yes. This AI rollup type of model is always based on buying and extension.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator AI Investor Forum: Ray Wu, Alumni Ventures AI Fund
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