Sequoia the leading VC firm is out with their annual AI thesis and with the launch of OpenAI’s o1, they are placing significant bets on the next evolution of artificial intelligence—models that don't just process data rapidly but actually pause to reason. They're investing in startups developing AI with advanced reasoning capabilities, aiming to fill market gaps and reshape entire industries. Opportunity size? $10 Trillion or more.
Highlights:
- Why now?: Traditional AI models excel at quick, pattern-based responses (System 1 thinking). VCs are now funding AI that employs deliberate, inference-time reasoning (System 2 thinking), akin to a human solving complex problems by thinking things through.
- OpenAI's o1 Model (Strawberry): OpenAI's latest model, o1—affectionately nicknamed "Strawberry"—is at the forefront of this shift. Unlike its predecessors, it uses "inference-time compute" to stop and think before responding, enabling deeper problem-solving abilities.
- Agentic Applications Emerging: Startups like Harvey (an AI lawyer), Factory (an AI software engineer), and Sierra (an AI customer support agent) are building applications with sophisticated cognitive architectures that mimic human reasoning in specific domains.
- VCs Targeting the Application Layer: With the foundational AI layers dominated by tech giants requiring vast capital, venture capitalists see the most promise in the application layer. This is where new "killer apps" with agentic capabilities are emerging, offering significant opportunities for returns.
- Expanding Markets: These advanced AI applications are not just enhancing existing markets but creating new ones by automating complex tasks, potentially disrupting industries like legal services, software development, and customer support.
