9/5/2023: Can Midjourney Pioneer a New Funding Model in the Age of AI?
Small Team. Big Profits. No VC.
The Information ran a profile about Midjourney today. It was a fascinating story and I hope more tech entrepreneurs will pay attention to Midjourney’s unique operating model. Unlike its money guzzling rival stability.ai, Midjourney funded the company with cash flows generated from the app and despite its $200M ARR, the company only has 40 employees. TBH, their UI is quite painful to use. Users have to input prompts through their discord channel and wait for like 15 seconds for the images to appear but the images generated from Midjourney is just way better than OpenAI’s Dall*E. They definitely have their priority and focus in order because at the end of the day, people mostly care about the quality of the images generated. They are on track to become the Craigslist of AI. In the age of AI, a tremendous amount of value can be created with a small number of people and Midjourney is the embodiment of this new paradigm. They still have a lot of technological and regulatory challenges ahead. But if the Generative AI art is here to stay, I believe Midjourney will continue to thrive.
Now the question is how replicable Midjourney’s funding model is. Can tech entrepreneurs build big successful businesses without taking big VC funding? I believe most software startups spend raised funds on hiring engineers and designers to build products, acquiring customers, business operations and servers. If a startup can profitably acquire customers and use AI to speed up product development and business operations, it might not need a lot of outside funding to build a big successful business. I personally feel I am at least 5X more productive as an engineer with ChatGPT and Github Copilot. In other words, startups these days can achieve the same productivity with fewer engineers and with fewer engineers, you need a smaller operations team. If the startups can acquire customers profitably, they can get to cash flow positive pretty quickly. If that is the case, would venture capital really be necessary? Of course this doesn’t apply to all tech startups. But I can see in the next few years there will be many 10-person SaaS companies doing $10M ARR with super productive engineers, salespeople and customer service representatives powered by AI. This had happened to a good number of capital efficient businesses before the AI era but I believe AI will make the percentage of businesses who can pull this off a lot higher.