Accel Sees Room for AI Market to Grow

Bloomberg

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00:00Bluntly, is there a bubble?

00:03Well, I mean, this is the question.

00:05I think it's interesting to put that in context.

00:10So if you look at the Nasdaq in the past 15 years,

00:14like with every platform shift, which is every five years,

00:17so you had mobile, cloud, and AI, the Nasdaq has doubled.

00:21So basically where we are right now, where the Nasdaq is,

00:24is basically in line with historical trends.

00:27So yes, with every platform shift, you're seeing frosty valuation,

00:31and we are clearly seeing that with AI.

00:34And not all companies are going to be winners,

00:37but we're seeing tremendous opportunities here for value creation,

00:41and we think that the winners are going to take a large share of that value creation.

00:47So it's all about picking the right companies.

00:50Well, if we look at the public markets, the winners have been clear,

00:53and you call them as the super six that have really been generating real cash.

00:57That was something that Chuck Robbins just said to us.

00:59Look, my biggest demand has been coming from the hyperscalers,

01:02and they're pretty good for the money.

01:04But then in the private markets,

01:06all winning bets have sort of been on a certain few names,

01:08OpenAI, for example, Philippe.

01:10Where else, though, are you seeing the money being allocated to,

01:13particularly in Europe?

01:14Yeah, I think it's worse looking at where the venture funding is going in terms of cloud and AI.

01:23I mean, the total for Europe and Israel and the U.S. is about $184 billion for this year.

01:3060% of that is going into the models, so that's OpenAI, Entropic, X.

01:35But the rest, 40%, is going into a new generation of AI native application

01:43that are growing very, very fast and that are very exciting.

01:48So you have the cursor, the perplexity, the Decagon in the U.S.

01:51You have the Syrah, the Lovable, NA10, and Syntesia in Europe.

01:55And what's very interesting here is that if you look at the model side,

01:59yes, the vast majority of the funding is going into U.S. company,

02:03but if you look at the AI native application side,

02:07actually, Europe fares very well against the U.S.

02:09because it's $30 billion in Europe versus $45 billion in the U.S.

02:15So that's about two-thirds.

02:17And Europe has shown that it can really generate its shares of winner in this category.

02:23And you've been backing some of those winners.

02:25In particular, I think of Lovable, for example,

02:28that everyone has been very excited about the way in which Vibe coding

02:31has taken over absolutely everything.

02:32But how do you know that you're not paying too much when getting into those rounds?

02:38Well, I mean, I think this is a question we ask ourselves every time we invest.

02:44I think what we're trying to understand is, like, how far can this business run?

02:49I think if you look at Lovable, yeah, I mean, it's Vibe coding.

02:53What does Vibe coding mean?

02:54That means that any human on Earth can start to code.

02:57I mean, we feel that is a pretty, pretty large market.

03:01And these, you know, these can be Vibe coders who are creators,

03:06and there can be Vibe coders who are in the enterprise and who are trying to very fastly,

03:11you know, very quickly develop mock-ups of new product.

03:15So we actually think there's a lot of room to run in the case of Lovable.

03:21And as I said, I mean, I think valuation are where they are today.

03:26But I think if you look at the value creation for the winners,

03:31I think the opportunity we're seeing and that are unlocked with AI,

03:34I think are much bigger than what we have seen in the past,

03:37because the productivity improvement potential that AI is giving

03:41goes well beyond what any of the previous platform shifts have generated.

03:47Some of these companies are scaling so fast,

03:49and I feel like we've had the CEO of Synthesia on plenty of times

03:53to talk about how he's just driving forward in enterprises at such scale

03:57and the ability to produce AI real video that feels incredibly realistic, Philippe.

04:04But I'm interested as to you in your past and in the companies that you've helped navigate

04:08have gone public.

04:09You've seen it with DocuSign.

04:10You've seen it with UiPath.

04:12How will we see these companies eventually tap the public markets?

04:15Because they're getting enormous without needing to.

04:19Well, I mean, I think at some point, you know,

04:22getting public is in the natural path for companies.

04:26And I think the bar to go public now is much higher than it was, you know, five years ago.

04:32So to go public, you want companies to be, you know,

04:36probably in the 500 to 700 million in annual recurring revenues.

04:44So there's still room for this company to grow into, you know, into these numbers.

04:50And, you know, getting public is just like a financing milestone.

04:53So the fact that they remain private is not something that is preventing them to grow

04:58because they have access to the capital they need on the private market side as well.

05:02What's been interesting is a lot of these AI native applications,

05:07whether they've been snapped up for aqua hire purposes

05:10or whether they've been snapped up for the underlying technology, Philippe,

05:13they have been snapped up.

05:14And by some of these super six, as you mentioned,

05:16is that M&A trend going to continue?

05:18And how are you ensuring that, well,

05:20the founders protect the rest of the employee base that they've been growing?

05:24Well, I mean, I think the, you know,

05:28a lot of the M&A that we have seen so far

05:30have been more on the model development side

05:34with the big six trying to kind of snap really big talents.

05:38I think on the application side,

05:41I think the founder that we're seeing extremely ambitious,

05:45they have global ambition and they won't see how, you know,

05:51how much, you know, how fast and how big their business can become.

05:54So we haven't seen this as any sort of concern right now.

06:00And as I said, given that they have access to the capital

06:02that they need to, you know, to run the business

06:06and that they also have the opportunity

06:08to potentially sell some stock along the way

06:11through secondary sales,

06:13there's everything that's needed to keep them motivated

06:16to build big global businesses.

06:19Do they have to come to American capital markets

06:23or indeed American venture capital to scale

06:26if they are European, if they're Israeli based?

06:30Well, I mean, I think there are two different things.

06:32There is a market that you address

06:33and there's where the capital is coming from.

06:36I think what we have seen of Europe and Israel

06:38is great, great talent, great team,

06:43great engineering resources.

06:47And so what companies are doing

06:48is they are basically building their product

06:50and engineering team in Europe and Israel.

06:53And if they're selling software,

06:54I mean, the biggest market for every dollar spent of software,

06:5750 cents is spent in the US.

06:58So then they have to develop their go-to market in the US.

07:03So I think from a market standpoint, yes,

07:04if you want to be a global leader in software and AI,

07:08you have to be a leader in the US market.

07:11Now, in terms of, you know,

07:13where the capital is coming from,

07:15I think there are big pools of capital

07:17on both sides of the ocean.

07:19And European companies have been raising rounds

07:23of similar size than the US.

07:26So they have access to the, you know,

07:28the same pockets of capital,

07:30whether it's from Europe or it's from the US.

07:32With GlobalScape,

07:34which is the enormous amount of research

07:36that you've managed to bring to us

07:38and you analyze trends and innovation

07:40and you go global,

07:41you think about funding levels,

07:42where aren't we talking about enough, Philippe?

07:44Well, I mean, I think what's going to be interesting to see

07:50is, you know, how far can the models go?

07:55I think so far we have seen a pretty steep curve

07:59of innovation on the model side.

08:02And I think the big question is,

08:04when are we, you know,

08:05is that improvement curve going to continue to accelerate

08:08or at some point,

08:09are we going to tap out with the current architecture?

08:12And then, you know, I think if we tap out,

08:15then there's going to be a plateau

08:16until we get to the next level of architecture.

08:20But I think if I look at where we are right now,

08:23we're just scratching the surface

08:25in terms of deploying the technology that we have today.

08:29So I have, you know, probably any,

08:33if you look at the enterprise,

08:35we haven't reached the S-curve

08:38in terms of the agentic adoption for different reasons.

08:41We think that's going to happen

08:42in the next couple of years.

08:45So I think we have plenty of room to grow

08:48and plenty of opportunities for companies

08:51to improve their productivity using AI technologies.

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