Artificial intelligence is changing how Silicon Valley builds startups

By Erin Griffith

 

Almost every day, Grant Lee, a Silicon Valley entrepreneur, hears from investors who try to persuade him to take their money. Some have even sent him and his cofounders personalised gift baskets. 

Lee, 41, would normally be flattered. In the past, a fast-growing startup like Gamma, the artificial intelligence startup he helped establish in 2020, would have constantly looked out for more funding. 

But like many young startups in Silicon Valley today, Gamma is pursuing a different strategy. It is using artificial intelligence tools to increase its employees’ productivity in everything from customer service and marketing to coding and customer research. His company has hired only 28 people to get “tens of millions” in annual recurring revenue and nearly 50 million users. Gamma is also profitable. “If we were from the generation before, we would easily be at 200 employees,” Lee said. “We get a chance to rethink that, basically rewrite the playbook.” 

 

The old Silicon Valley model dictated that startups should raise a huge sum of money from venture capital investors and spend it hiring an army of employees to scale up fast. Profits would come much later. Until then, head count and fund-raising were badges of honor among founders, who philosophized that bigger was better. But Gamma is among a growing cohort of startups, most of them working on AI products, that are also using AI to maximise efficiency. They make money and are growing fast without the funding or employees they would have needed before. 

The biggest bragging rights for these startups are for making the most revenue with the fewest workers. 

Stories of “tiny team” success have now become a meme, with techies excitedly sharing lists that show how Anysphere, a startup that makes the coding software Cursor, hit $100 million in annual recurring revenue in less than two years with just 20 employees, and how ElevenLabs, an AI voice startup, did the same with around 50 workers. 

The potential for AI to let start-ups do more with less has led to wild speculation about the future. Sam Altman, the chief executive of OpenAI, has predicted there could someday be a one-person company worth $1 billion. His company, which is building a cost-intensive form of AI called a foundational model, employs more than 4,000 people and has raised more than $20 billion in funding. Runway Financial, a finance software company, has said it plans to top out at 100 employees because each of its workers will do the work of 1.5 people. Agency, a startup using AI for customer service, also plans to hire no more than 100 workers. “It’s about eliminating roles that are not necessary when you have smaller teams,” said Elias Torres, Agency’s founder. The idea of AI-driven efficiency was bolstered last month by DeepSeek, the Chinese AI startup that showed it could build AI tools for a small fraction of the typical cost. Its breakthrough, built on open source tools that are freely available online, set off an explosion of companies building new products using DeepSeek’s inexpensive techniques. 

“DeepSeek was a watershed moment,” said Gaurav Jain, an investor at the venture firm Afore Capital, which has backed Gamma. “The cost of compute is going to go down very, very fast, very quickly.” Jain compared new AI startups to the wave of companies that arose in the late 2000s, after Amazon began offering cheap cloud computing services. That lowered the cost of starting a company, leading to a flurry of new startups that could be built more cheaply. “This time we’re automating humans as opposed to just the data centers,” Jain said.

 

But if start-ups can become profitable without spending much, that could become a problem for venture capital investors, who allocate tens of billions to invest in AI startups. Last year, AI companies raised $97 billion in funding, making up 46 percent of all venture investment in the US, according to PitchBook. 

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