Figma's CEO argues that as capital and talent flock to AI, significant opportunities are being ignored in less-hyped industries. He cites his investments in fintech for farmers and cryogenics as examples of valuable, missionary-led companies thriving outside the crowded AI spotlight.
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Focusing only on trendy sectors leads to intense competition where the vast majority of startups fail. True opportunity lies in contrarian ideas that others overlook or dismiss, as these markets have fewer competitors.
When evaluating AI startups, don't just consider the current product landscape. Instead, visualize the future state of giants like OpenAI as multi-trillion dollar companies. Their "sphere of influence" will be vast. The best opportunities are "second-order" companies operating in niches these giants are unlikely to touch.
Instead of selling software to traditional industries, a more defensible approach is to build vertically integrated companies. This involves acquiring or starting a business in a non-sexy industry (e.g., a law firm, hospital) and rebuilding its entire operational stack with AI at its core, something a pure software vendor cannot do.
Despite the hype, YC's focus isn't just on pure AI startups. The accelerator is backing a diverse portfolio of companies in healthcare, finance, and deep tech, using AI as a disruptive tool to rewrite the rules of these traditional, 'dusty' industries, much like the internet did.
The most transformative opportunities for founders lie not in crowded SaaS markets but in applying an advanced technology mindset to legacy industries. Sectors like lumber milling, mining, and metalwork are ripe for disruption through automation and robotics, creating massive, untapped value.
VC Joe Lonsdale argues investors are overly focused on software 'infinity stories' that could be worth trillions. Meanwhile, the 'real economy' (construction, quarrying, manufacturing) represents 85% of capital and is ripe for AI-driven transformation. These less-hyped applications represent a massive, misunderstood, and less competitive investment area.
Figma's market initially seemed too small to attract major VC interest or intense competition, giving them space to build a defensible product. Founders can gain a significant advantage by working in overlooked spaces, provided they have genuine passion to sustain them for a decade or more.
The focus on AI among institutional investors is so absolute that promising non-AI companies risk "dying of neglect" and being unable to secure follow-on funding. This creates a potential opportunity gap for angel investors to fund valuable businesses in overlooked sectors.
The AI investment case might be inverted. While tech firms spend trillions on infrastructure with uncertain returns, traditional sector companies (industrials, healthcare) can leverage powerful AI services for a fraction of the cost. They capture a massive 'value gap,' gaining productivity without the huge capital outlay.
Investing in startups directly adjacent to OpenAI is risky, as they will inevitably build those features. A smarter strategy is backing "second-order effect" companies applying AI to niche, unsexy industries that are outside the core focus of top AI researchers.