The AI startup landscape has become a thrilling yet precarious terrain for investment. Established players like OpenAI, Microsoft, and Google are rapidly expanding their capabilities, posing a threat to the viability of smaller companies. Meanwhile, new startups are achieving growth stage at an unprecedented pace, adding to the complexity of the ecosystem.

However, the notion of “growth stage” has become increasingly ambiguous in the context of AI startups.

Jill Chase, a partner at CapitalG, shared her insights on stage at TechCrunch AI Sessions, highlighting the emergence of companies that have reached tens of millions in annual recurring revenue and surpassed $1 billion in valuation within just a year of operation. Although these companies may appear mature in terms of valuation and revenue, they often lack essential infrastructure, including safety measures, hiring processes, and executive leadership.

Chase noted that this phenomenon is a double-edged sword, representing both an exciting trend of rapid growth and a daunting investment landscape. “On one hand, it’s really exciting to see this new trend of extremely fast growth,” she said. “On the other hand, it’s a bit scary to invest in a company that didn’t exist 12 months ago, with things changing so quickly.”

The rapid pace of innovation in the AI space has made it challenging for investors to make informed decisions. As Chase pointed out, “Who knows who is in a garage somewhere, maybe in this audience, starting a company that in 12 months will be a lot better than this one I’m investing in that’s at $50 million ARR today?” This uncertainty has made growth investing more confusing than ever.

To navigate this complex landscape, Chase emphasized the importance of investors having confidence in the category and the founder’s ability to adapt quickly and anticipate future developments. She cited AI coding startup Cursor as a prime example of a company that successfully capitalized on the right use case for AI code generation, given the technology available at the time.

However, Chase warned that Cursor must continue to innovate to maintain its competitive edge. With the emergence of AI software engineers expected by the end of the year, the company’s current offerings may become less relevant. It is crucial for the Cursor team to anticipate this shift and develop their product to accommodate more powerful models, enabling them to quickly adapt and remain competitive.