Your AI Scale Strategy Needs a Rethink

I think agentic AI is the solution that is now being embedded inside of vertical AI. And I totally believe that this is an application that's going to start to go and enter these different verticals.

I think vertical companies can probably transmogrify.

Themselves into horizontal companies with enough time.

So I'm pro vertical companies for now.

I still think there's going to be some big horizontal companies that will win. Those good big horizontal ones tend to be very expensive and the vertical ones.

Just, we know how to help them.

We have experience with them in the pre seed and seed stage. It's easier to be vertical and grow from there.

Hey guys. So we know that 2025's big headline is AI agents, but the question is, do you build a horizontal solution or a vertical solution? This has kind of been an age old question that's been around. Big debate dating back to the SAS days and then AI and now with the gentic AI. And this is something that I'm personally fascinated by. So I asked a dozen leading AI VCs and founders to get their thoughts on it. So what's the best way to start? What creates the biggest TAM and the biggest upset side potential? And so my team and I went through the first five episodes of the Gentex podcast and brought you the very best clips of different perspectives on this topic of horizontal versus agentic. So if you're an AI founder starting to build an agentic system, check out this video to hopefully get some great perspectives and insights. So does everybody know what we're talking about when we're talking about horizontal versus vertical? Horizontal is the platform, right? It's kind of like something that's, that's broad, like for example, an HR solution that any company can use. Whereas this vertical is like starting off with a very specific vertical use case. You have a very specific customer Persona and problem in mind. It's usually an industry and a business process. They, they have pros and cons, right? Like how you start where you start. Sometimes you can't choose you with some of your friends you just built something and, and now you're, you're kind of, whether you like it or not, you started as horizontal because you guys built this cool thing and now you're taking it around and trying to find product market fit. But what are the thoughts from the panel? You know, what are your thoughts about horizontal versus vertical? When you're investing at the early stage.

As venture investor, it's very hard to invest in a niche point solution because just very hard to have venture skill. But at the same time, to go to market in the initial stage, you might need to have a winner product, the bchat market. But I feel like you always need this kind of horrendous solution to really win the venture game in a sense of build a big enough product portfolio or whatever, big enough market to really win like venture skill, right. So for me I feel like long term I really want to see more horizontal play. But I also understand in short term you need to have a kind of a point solution to really win the game early on, get go to market. Right.

So when it comes to being a new company, I will say like going forwards on first is very difficult. The places where we were the first entrances that really took a horizontal approach that are very agentic are basically like OpenAI and Devin or Cognition labs for those that are familiar that is really hitting coding agents but trying to make them very generalizable across companies and they've seen a lot of success. But it requires like you know, best researchers, best engineers in the world to try and come up with something that is a flywheel that they're able to do better. So if you want to go horizontal, I just really think barrier carefully, very hard around what your advantage is because people are going to come in for whatever niche you want to go after.

I think as a vertically jet company you have some advantages that the incumbents are fundamentally lacking. And this is one of the common questions that pop up on investor conversations is like okay and like I'll just use us as an example like the day endurance page, right? Why can't an incumbent data Azure platform come in and they have to slap some agentic functionality on top of their obligation and just sell at the same way that we do. And the reason for that is fundamentally as an advantage such as being for example fully agnostic and being go from the ground up to your staff, right? So as a verbal agent company, the promise that we're getting customers is no longer a faster time to an outcome the same way that a SaaS company. But it's that final outcome itself that's what resembling to busters. And I think that on its own is fundamentally a completely different type of business model that Cook was actually deflationary. But there's the other side of it which is the number of outcomes that you can now get is significantly higher, meaning you in a way are still kind of off balancing that in a way. You could say the same thing about Bob, right? Cloud is interweight deflationary to data centers and price of building software is not Significantly lower with Bob, but the amount of total software that is now being generated is significant, becoming higher. So I think in a way that off balances out because you can now get to Bitcoin more moderators on the other side. I think a general fear for people is that we start as this vertical company, then we will forever be painted as this tiny vertical company. We'll never get to expand and do other things. But actually I think this is untrue. Even if you take HubSpot as an example. They started as landing page optimization and became a CRM company many years later when it became clear that customers needed CRMs. So I would start with you should win something and then find the strategic vision from the thing you win to a much larger horizontal company. And I think it's unclear if OpenAI or any of the API providers will be that horizontal company. It's hard to say where value will accrue, but it's probably not the API.

Two key things to pay attention to very early on is like what is that first vertical that you go after? Just having a really solid story of why you're going to focus there. And then again it's all theoretical at the precede. Right. But there has to be some kind of lot if you're talking about expanding horizontally and becoming a platform eventually, how much overlap is there between that first vertical and the second one that you're going after? Ensuring that that first vertical is big enough on its own, frankly. Because chances are that while you're building for X, there's a million other companies that are building for the vertical that you're going after and they're going to have a head start. So how are you going to be able to kind of like compete? You need a strategy before you even get going.

In that sense, I'll call software development a vertical. So we saw Copilot, there's cursor. Cursor took the basically saying I'm going to do rag for your code base and I'm going to have awareness of your code base locally and then everything's better than Copilot. I think the same thing will probably play out in multiple industries like health tech, like clinical notes, having context and awareness of those types of things to produce less burnout for doctors or legal tech, as in structured clauses and things like that I think so the vertical companies are the ones that are applying the new infrastructure changes the fastest. And I think at this juncture, industry knowledge of your of your domain is an edge and speed of shipping is another edge. And if you do that fast, you'll probably dominate a market.

Like how many of you have started a business before? Okay, how many of you have done marketing in your business before? How'd that go? 40% of the content you put into the marketplace actually pushes your ideal prospect away from the sale, right? Because it's intrusive. Wrong message, wrong time, wrong channel, wrong offer. The first of those three are math problems. So as we think about AI and machine learning and the combinatorial factor of generative plus machine learning, marketing, which has traditionally been a one to many activity, is now going to be a one to one activity. You can buy traffic and you can go on social platforms, you can publish content and play the again the social platform game. But in that world, you really don't have any ownership over your data, right? If Facebook decides to make a pivot or Google decides to change the algorithm on any of their platforms, all the hard work you put into building your content could implode overnight. So we wanted to focus on the kind of marketing channels that were owned, right? So when you own somebody's SMS list or their email, right? If the platform starts playing games, you can take your toys and go play with somebody else.

And so our job as a horizontal player is to be able to create 80% of the features and functionality and the things that are required in order for us to be able to fulfill.

The requirements that people are looking for.

And I think that's where, you know, building out a partner ecosystem, having great partners you're working with, comes into play of being able to take it the.

Rest of the way. It was actually important for us to get diversity of use cases. You actually end up always building better software if you have a little bit of diversity. You build it once, you build it twice, by the third time, you know what you're doing and how to generalize it. And as a result, it's actually had profound implications on how we've engineered the product. What are the constructs that we expose from a user experience, what are the requirements from our platform capabilities? And it kind of gave us a deeper understanding of what we need to build, how we needed to expose it, and really kind of identified what are the appropriate building blocks to create a tremendous level of customizability while being understandable, while solving the most diverse set of use cases.

And I think the first question is vertical versus horizontal. The second is product or platform. What we've discovered that it's not just a single use case product for support, but as you start doing support first with inside the organization, you get pull. Folks are asking well okay you did support but like could you help automate this success function? It's exactly like support, but just go outbound or sales or another. And so what we realized what was needed was not just this one product, but a platform to build AI agents. Because the support agent and the sales agent both ingest Salesforce data, both have a personality, both talk to a chatbot and as a customer, like let's say a TripAdvisor, you're not going to put five chatbots on your site. You need one chatbot that understands when a pre sale customer shows up, then when the same customers now post sale asks a question, you need to serve that as well. So maybe the answer isn't even just horizontal vertical, but should it be a product or a platform?

You know, I think what I've learned, my takeaway after diving deep and getting.

A lot of perspective is both can win, right? Both have their playbooks.

Is a matter of executing the playbook properly. Some deep domain experts start off for.

Like an AI agents for insurance, but.

Now it's like okay, well what's similar?

Unless it's span from there and tell.

A VC like me the story of ultimately how does this track on your scale?