Your AI Doesn't Make You Different

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SummerFest Tech Pitch Competition

In late June in Milwaukee, Wisconsin there is SummerFest, which is one of the top music festivals in the country. Concurrent to that, on June 23-25th there is a tech festival. As part of that, there is a pitch competition, featuring four different tracks - One of our portfolio companies, Huupe, pitched in the competition several years ago…

Link to apply is here! 

If you apply, reply to this email and let me know! This is an event that is something that I end up attending every year, so would be great to meet you if it works out!

Now onto today’s post!

Recently, I was talking to one of our portfolio founders who was talking to a tier one VC fund.

The startup CEO relayed to me that the Partner said, "Our LPs want to make sure we are investing in AI. Can you help me understand the details of how you are using AI in your company?”

If you look at the current 21 companies in the Tundra Angels’ portfolio as of April 2nd, 2025, only a handful of them are bets on companies that use AI as an enabler of value creation. The rest are bets on companies where the startup’s product and business model meets the market and creates a check-mate move. It’s a bet on the future and of superior defensibility.

In the case of this startup above, their market problem dynamic is such that AI is not the main enabler of value creation, at least not right now. That wasn’t the solve. And yet…

The VC Partner was looking for AI when AI wasn’t warranted.

When the CEO told me about this conversation, I was incredulous.

I said, “Does this investor even get what you’re doing? Does he or she even see the opportunity? They are completely missing the mark here.”

The CEO and I were on the same page - this was not the right investor. If they cannot get off of the AI hype-train and see the value creation for what it is, let’s move on to an investor who can notice objective value creation when they see it.

I find it unfortunate that for some investors, the unit of analysis has moved 15 degrees away from the True North.

It begs the question, “What are we investing in, anyway?”

Founders are Adapting

Unsurprisingly, because of the unlock that AI has created and investor perspectives such as these, startup founders have learned what they need to stay relevant. “We need AI in our product. And, our messaging needs to show that we are an AI-startup. We need AI messaging on our website, we need to remind our customers that we are using AI to do this task and that, we need it on all of our marketing materials so that the customers feel that they are relevant in today’s world.”

Don’t misunderstand me. I think AI is extremely valuable and important for value creation. But I think that lots of value can still be created without AI being the atomic unit of what the company is doing. I fear that they are over-rotating on their affinity for AI and losing the business purpose of the AI to begin with. I fear that investors are passing up great opportunities because they are applying a AI-fits-all mental model in investing.

Furthermore, I argue that investing this AI era now also creates some challenging dynamics in assessing startup opportunities.

There are some loud voices in startups and VC that want to make us believe, “If it’s not AI, it’s not worth anything.”

I don’t buy that, and don’t subscribe to that. Here is my view.

Looking at the technology unlocks the last two decades, first cloud, then mobile, later blockchain, now AI, technology enablements have come, but great companies have existed before AI was in full swing.

When we think about all of the tech companies that are now pillars of our world - Meta, AirBnb, Uber, Amazon, Spotify, and the list goes on and on - upon their initial investments and growth in the decades of the 2000s, a decade and a half before the current AI boom, I bet none of those seed investors were asking about the respective company’s AI strategy, as this VC Partner was to our portfolio company. Not in 2001, or 2008 or 2009!

These giant tech companies reached their levels of success because of incredible teams, exceptional product design, novel business models that create harmony in markets, strong defensibility, and impeccable timing, among many other things.

When I think about investing in the current moment, it’s about separating out the noise from the signal.

I think about three different things in investing in this comment moment. In short,

1. Differentiation beyond AI

2. How short term demand signals carry distortion

3. Sharing the funnel versus owning the funnel

Differentiation Beyond AI

All startup messaging now sounds and looks the same - AI-enabled [blank]. This makes many startups in many markets look the same. It produces lots of undifferentiated startup opportunities where everything falls into the Sea of Sameness. I’ll share a story.

In the last few years, AI-transcription of video calls have become a new standard. Currently, I use AI to transcribe and record each of my video calls. It’s extremely helpful. Two years ago, I initially started with Fathom.video. Later on, I discovered Grain, used that for about a year, then in the last few months, I went back to Fathom.video. Then I recently discovered Otter.AI, and started using that but determined that Fathom.video worked better for my use case. I seamlessly jumped from transcription tool to transcription tool, each one used for the exact same use case.

As an investor, here is my conviction around AI-startups like this.

I don’t like investing in opportunities that have relatively low switching costs like this, regardless if it’s AI-based or not. But many AI startups fall into this category - they are tools that tend to have low switching costs. For Tundra Angels’ investing style, it feels a lot more like gambling than investing. Investing in companies that can scale the fastest without substantial tech differentiation with similar switching costs feels like betting on a horse race.

Our conviction is that we choose not to invest betting on which horses can run the fastest and raise capital the quickest.

What game are we playing here, anyway?

Demand Signals Carry Distortion

I am lot more skeptical about a startup’s traction story than I was three years ago.

One of the ways that Tundra Angels vets out deals is looking at the demand signals in the market. But in the era of modern AI, I’ve observed that these demand signals now carry distortion.

Because of the AI era, we are witnessing an exodus of technology customers. There are millions of people in flight who have now entered buying cycles for new products. These existing customers, who were probably pretty content a few years ago, now see a promise of a different level of productivity using AI. Similar to when Moses and the Israelites left Egypt, this uncorking of AI is catalyzing an exodus of customers in flight for AI-startups to receive.

That’s good for tech startups in the short term - so the market demand signals look strong.

Investing in startups is forming a conviction today on what will be the future 5-10 years from now.

In forming that conviction, especially with a pre-seed or seed investor, the data points are limited. The short-term traction looks good. Just because AI-companies are hot off the blocks doesn’t mean they will be hot in 12 months, 24 months, or even 5 years from now.

A startup’s demand signals now are not indicative of demand signals in the future.

That is where my wrestling comes in.

One of the things that I ask myself often is this question:

Is the story unfolding this way because the market is hot, or are there fundamental things that this startup is doing that will cause them to win in this market?

Based on the exodus of new customers in flight, the market is absolutely hot. But the answer to if this AI-startup is really the best one in the market is cloudy.

Sharing the Marketing Funnel vs. Owning It

Do founders want to share the marketing funnel with 20 other similar startups or do founders want to own the funnel?

At one time, I encountered a startup. This company had recently launched their AI-based product for helping business owners do research, or along those lines.

The company had very strong initial traction, aggregating several hundred thousand dollars of revenue in the first six months of launch. This company ended up going through a well-known startup accelerator and eventually raising over $1M of venture capital funding.

After review of the opportunity, the product was relatively straightforward - tapping into some LLMs and putting a UX wrapper around it. They didn’t have a great vision for long-term defensibility. Thus, I built the conviction that this company was getting its strong initial traction due to the customers that were entering buying cycles, looking for a tool like this, and not anything revolutionary or special to the company itself. So, we passed.

But we passed for another reason. Based on the simplicity of the product, I figured that there were probably at least 20 other startups doing exactly what this startup was doing. Metaphorically speaking, it was as if all of these 20 startups were simultaneously in a butterfly house, trying to catch butterflies in the air in the same contained area.

Hence, I formed the conviction that this startup was growing by virtue of the fact that they happened to be an option for the market.

We want to be investing in companies that will be there 10 years from now, not ones that happen to be there, now.

What game are we playing here, anyway?

So, What Are You (Tundra Angels) Investing In?

A venture investors’ main job is to invest in companies that will be the number one or number two companies in that market - point blank. That is my conviction. For reference, I wrote an article “Why Venture Capitalists Don’t Play for Third Place.”

If Tundra Angels’ doesn’t have a relatively clear line of sight to this company being #1 or #2 in their respective market, we have a hard time moving it forward in our process and making an investment.

I realize that this approach is much different than other playbooks of VCs, which is, investing in big markets and “the messy middle,” as Harry Stebbings from 20VC calls it. That is, investing in a startup although there is little differentiation and companies are jockeying for position like a horse race.

That’s not the investing game that Tundra Angels plays.

I said earlier that investing in startups is forming a conviction today on what will be the future 5-10 years from now. We think about the question, “What is the future of this market 5-10 years from now?”

If we don’t have a clear line of sight right now to a startup being the #1 or #2 startup in the market 5-10 years from now, we won’t invest. 

When I say clear line of sight, I am referring to a degree of much more clarity than it feels like many investors tend to get before they invest. We spend a lot of time now to understand the dynamics of the market and to build or forfeit conviction on why this company will win. It’s a lot of time spent in the risk calculation between the startup and the market, which makes it super fun.

A few examples from the Tundra Angels’ portfolio are:

• Octane Coffee, which is a robotic automated coffee drive-thru. It is a robotic configuration within a shipping container. Customers get on the Octane Coffee app, place the order on their phone, and GPS tracks their location on the way to the kiosk and is perfectly timed so that the drink is ready when the customer is turning into the drive-thru. They pull up, scan the QR code, the cabinet rotates, they grab their drink, and drive away. It is literally a grab and go experience.

• Huupe, which is a basketball hoop with a screen as a backboard, sensors to track shot trajectory, etc. and endless games to play with people across the world, Huupe has taken the basketball world by storm. Before Christmas, they released a Mini Huupe, that fits on the back of a bedroom door, office door, etc. They completely sold out of all of their units at Christmas and are growing rapidly.

I could go through any number of our other portfolio companies. To further this point, both of these companies are unrivaled in their markets. But that’s the way we like it. It’s much easier to win your market when you’re the only one in it and owning the funnel.

Our 22nd portfolio company, which has not been announced yet, fits this bill perfectly. You’ll have to wait in a week or two for my write up on why we invested in this company, but this software company has a revolutionary underlying technology in a largely under-addressed market. They have several strong moats of defensibility. Interestingly, the company uses some AI but doesn’t use AI in major way because that’s not where the market is. That’s not what the market needs. But, the state of the art technology in this space is highly inferior. It’s equivalent to the customer seeing in black and white versus seeing in color with the startup’s product.

“What game are we playing here, anyway?”

AI Can’t Change Everything

In all of this, I go back to the basics. I go back to things like human purchase behavior, human implementation, and brick and mortar, and budgets.

• In the age of AI, humans still have autonomy to make purchase decisions.

• In the age of AI, humans still need to handle implementation of a product within an organization, getting everyone up to speed with how to use the product.

• Last I checked, humans make purchases for new software products by credit card and bank transfer. AI can’t auto-charge our credit cards and automatically make money move to purchase new products.

The customers’ use cases haven’t materially changed. Their jobs to be done largely are the same. And they still face the same constraints - budgets, short on time, etc. AI doesn’t change those constraints.

But great businesses - products, business models, GTM strategies, teams, and etc. can design beautifully around these constraints.

It’s not one thing, namely AI. It’s a series of a startup’s execution moves that make the market sing in perfect harmony.

Closing Thoughts

Your AI doesn’t make you different, it just makes you a contender.

It’s important to separate the noise from the signal.

I think the answer, in part, is found in things like:

• Differentiation beyond AI

• Having a superiority beyond AI, into the business model, team, GTM strategy, and not relying only on AI as your main differentiator.

• And, owning the marketing funnel, rather than sharing it with 20 other startups.

Points like these push us past the flashy AI that gets attention and headlines and brings us back to the fundamental reasons why the tech giants or Meta, AirBnB, Uber, Amazon etc. were successful to begin with. Not an AI strategy, but a sound understanding of the market, with the right team, the right business model, etc., for the right moment.

But separating the noise from the signal is also in the founder asking a serious question,

“What game are we playing here, anyway? What is the future of this market 10 years from now?”

A lot of this answer requires the founder to make a bet on the future. You can be sure it will not be, “We won because of our AI.”

Your AI doesn’t make you different, it just makes you a contender.

So what game are you playing here, anyway?

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