As I’ve said repeatedly, AI is table stakes and will be embedded in all applications as long as the productivity increase is there and customers are willing to pay. While we have Marc Andreessen’s’ techno-optimist manifesto this week, IMO there is a better, more practical letter you should read and that is from Satya Nadella. There is no better zoom out communicator on this topic, and I encourage all of you to read his annual letter to investors as he eloquently spells out the opportunity ahead in what he calls the New Era of AI. In short, we are entering a new era and to “accelerate our lead in AI by infusing this technology across every layer of the tech stack.” Repeat after me, AI is a technology and will be infused everywhere.

This next generation of AI will reshape every software category and every business, including our own. Forty-eight years after its founding, Microsoft remains a consequential company because time and time again—from PC/Server, to Web/Internet, to Cloud/Mobile—we have adapted to technological paradigm shifts. Today, we are doing so once again, as we lead this new era…

To build on this progress, we remain convicted on three things: First, we will maintain our lead as the top commercial cloud while innovating in consumer categories, from gaming to professional social networks. Second, because we know that maximum enterprise value gets created during platform shifts like this one, we will invest to accelerate our lead in AI by infusing this technology across every layer of the tech stack. And, finally, we will continue to drive operating leverage, aligning our cost structure with our revenue growth.

As we make progress on these priorities, we delivered strong results in fiscal year 2023, including a record $211 billion in revenue and over $88 billion in operating income.

And ❤️ this quote, “that maximum enterprise value gets created during platform shifts like this one” - if you’re an enterprise software startup and not thinking about how AI can disrupt your business remember Microsoft and every incumbent is and they will come after you. This does not mean as venture investors we should chase AI cos as the fundamental rules still apply.

While it’s not Techno-Optimism, let me provide some more rays of light 🌦️ for What’s 🔥 readers. In Gartner’s newest IT Spending forecast, enterprise software is projected to be one of the fastest growing categories with 13.8% growth in 2024 to cross the $1 Trillion mark for the first time ever💰! More importantly, Gartner is projecting growth to reaccelerate from the prior year from 12.9% to 13.8%. Now we all just need to figure out how to efficiently capture these big dollars. I know many CFOs are sharpening their pencils now and trying to figure out how much ARR should accelerate from this year to next. Finding that steady balance is key because if you forecast too much growth and it doesn’t happen, you’ve also increased your spending in advance, and it will get you further from cash flow breakeven if the growth does not materialize.

Here’s more from WSJ CIO Journal:

Enterprise software and IT services are expected to be 2024’s fastest growing segments, driven by an uptick in cloud vendor price increases and utilization efforts, as well as cybersecurity concerns, the research firm said.

A Gartner survey found that 80% of CIOs said they planned to boost spending on cyber and information security, a strategy boosted by the threat of new AI-enabled cyberattacks, Gartner said.

All told software spending will climb to $1.04 trillion, up 13.8% from 2023.

“In 2023 and 2024, very little IT spending will be tied to GenAI,” said John-David Lovelock, distinguished vice president at Gartner. “However, organizations are continuing to invest in AI and automation to increase operational efficiency and bridge IT talent gaps.”

Consistent with the hype around Generative AI, very little of that IT spending is tied to it for this year and next but it will be massive starting in 2025.

And here’s a video from CNBC providing more detail on the projections.

Some notes: overall enterprise IT Spending is recession proof, will add $2 Trillion of IT Spending in next 4 years, AI Theme some impact on spending for next year but not huge yet, software $1 TRILLION with double digit growth at 13.8%, shift from on-prem to cloud, new spend skews towards cloud, security towards cloud, AI security will be huge…

As always, 🙏🏼 for reading and please share with your friends and colleagues. Also please keep our friends in 🇮🇱 in your thoughts.

Scaling Startups

1. 👇🏼 💪🏼 Pumped to unveil the Dev First Founder Toolkit from boldstart ventures with practical tips, templates and more on how developer founders can accelerate their path from inception to PMF - powered by our amazing Operating Partner Anna Debenham who was early product hire Snyk (employee 4) through scale
   
   If you're thinking about starting a company, please reach out!

2. 🤔 from cofounder/CEO of Linear

   @patrickc

   on Stripe: “My intuition is that more of Stripe success than one would think is down to the fact that people like beautiful things and for rational reasons. Because, what does a beautiful thing tell you? It tells you the person who made it really cared, and you can observe some superficial details, but probably they didn’t only care about those and did everything in else in slapdash way. So, if you care about the infrastructure being holistically good, indexing on the superficial characteristics is not an irrational thing to do.“ Couldn't have said better and proud to have Patrick as an investor in

   @linear

   . We shouldn't accept poorly made things and that lack beauty.

3. Make your buyers superheroes…

   “the secret to b2b saas is selling things that get people promoted

4. This is a must read

Enterprise Tech

1. A few more interesting notes from the latest Gartner IT Forecast

   Gartner Says More Than 80% of Enterprises Will Have Used Generative AI APIs or Deployed Generative AI-Enabled Applications by 2026

   …up from 5% in 2023 - the enterprise spend is coming!

   And top category of increasing investment is in cybersecurity once again

2. Gartner Top 10 Strategic Technology Trends for 2024 = platform engineering starting to hit mainstream

3. Thought provoking on how to deal with Prompt Injection Attacks in LLMs for AI Security - dual LLMs - The Quarantined LLM and the Privileged LLM

   Simon details Dual LLMs as: “The Privileged LLM is the core of the AI assistant. It accepts input from trusted sources—primarily the user themselves—and acts on that input in various ways” Meanwhile, “The Quarantined LLM is used any time we need to work with untrusted content—content that might conceivably incorporate a prompt injection attack. It does not have access to tools, and is expected to have the potential to go rogue at any moment.” A really interesting approach, but one that also has challenges - which Simon details in a very objective manner.

4. State of WebAssembly (WASM) in 2023 from Scott Logic

   -Rust and JavaScript usage is continuing to increase, but some more notable changes are happening a little further down - with both Swift and Zig seeing a significant increase in adoption.

   -When it comes to which languages developers ‘desire’, with Zig, Kotlin and C# we see that desirability exceeds current usage

   -WebAssembly is still most often used for web application development, but serverless is continuing to rise, as is the use of WebAssembly as a plugin environment…

5. Future of Open Source according to Dave McJannet, CEO of Hashicorp - still defending the bait and switch and only time will tell how successful this is

   HashiCorp’s CEO predicted there would be “no more open source companies in Silicon Valley” unless the community rethinks how it protects innovation, as he defended the firm’s license switch at its user conference this month.

   At the time, HashiCorp said, “All production uses are allowed other than hosting or embedding the software in an offering competitive with HashiCorp commercial products, hosted or self-managed.”

   However, the move drew a furious reaction from the open source world. OpenTofu, a fork of Terraform, was launched in short order, under the aegis of the Linux Foundation.

   CEO Dave McJannet said this week that the license switch had been necessary as HashiCorp’s technology was critical to the modern cloud, and would only become more so the world’s biggest companies complete their shift from on-prem technologies.

   While open source advocates had slammed the license switch, McJannet described the reaction from its largest customers as “Great. Because you’re a critical partner to us and we need you to be a big, big company.”

6. 2023 State of DevOps Report is out - AI adoption early but building

7. Great interview with Peter McKay, CEO of Snyk (a portfolio co) on developer security, AI for developers and how Snyk helps devs build fast and provide guardrails and keep pace with new code generated by AI. Also 8 years after starting and creating a movement, Snyk recognized this year as leader in both Gartner Magic Quadrant and Forrester Wave 💪🏼

Markets

1. Sadly more of these to come - stunning and fast collapse of 🦄 Convoy from $3.8B valuation 18 months ago to shut down, yes shut down - company had raised over $1B from Fidelity, Capital G, T Rowe and others

   In the memo, Lewis said the company faced both an “unprecedented freight market collapse” and “dramatic monetary tightening.”

   “This combination ultimately crushed our progress at the same time that it was crushing our logical strategic acquirer — it was the perfect storm,” he wrote in the memo, which you can read in full below.

   Lewis said the company spent the past four months assessing all possible strategic options for the business. “However, none of the options ultimately materialized into anything sufficient to keep the company going in its then current form,” he wrote.

   The memo noted “potential future strategic options” but did not mention an acquisition.

   Before this week, Convoy had around 500 employees, down from a peak of about 1,500 people. The company raised $260 million at a $3.8 billion valuation just 18 months ago.

   And this from The Information - classic example of Huge TAM, old school industry, and the super challenging task of changing existing cultural behaviors and norms

   Automation Failure

   Convoy also struggled to compete effectively against more traditional freight brokerages, particularly for the business of large Fortune 500 companies. Its emphasis on automation didn’t play well in the freight industry, where shippers are used to developing relationships with sales representatives and account managers at various brokerages.

2. 🤯 Everyone wants to own the seed and first check rounds - General Catalyst buys VC fund in Berlin…“General Catalyst in German VC tie-up as part of European tech push” (FT)

   It has opted to partner with La Famiglia because of its experience in seed — or very early stage — investing where on-the-ground knowledge of entrepreneurs and markets is considered a key advantage, according to chief executive Hemant Taneja.

   “Seed investing is a local business and you have to be set up to interact with the founders,” Taneja said. “La Famiglia allows us to do that.”

3. Just wanted the thank my friends at JP Morgan for giving me the opportunity to speak at its 2nd Annua Asian Wealth Initiatives with 175 influential Asian American families across the country. It was simply awesome and inspiring to have the chance to be with so many AAPI founders and entrepreneurs and also discuss what we could do as a community to get stronger with a louder voice. My panel was on AI - Hype or Reality and by now you probably know what I talked about!