Issue #3: Vertical AI takes center stage at SF Tech Week

LLMs? Horizontal AI? Many VCs say that ship has sailed as Vertical and Agentic AI steals the show

I spent the last week at SF Tech Week and was drinking from the firehose as I talked to both founders and investors on their thoughts on where the puck is going. One of the most interesting talks I went to was held by Untapped Ventures and focused on Vertical and Agentic AI with two panels - one with all VCs, another with all founders + employees at startups.

Before either panel started, the session kicked off with this slide, which as you can probably tell, inspired the title of this issue of The Vertical AI Report.

This slide might be a shocker to some, and not surprising at all to others. At a high-level the point being made is - winners in the compute, LLM, Infrastructure, and Horizontal AI space have already emerged. While of course there could still be opportunities for startups to break out in these spaces, they’re going to be facing some fierce competition as they do.

Now, VCs are looking at Vertical and Agentic AI as the two key areas where startups have a chance to build massive businesses. Beyond that, maybe quantum, maybe something else as we forge ahead towards AGI.

In the VC panels, everyone seemed to double-down on the idea that Vertical AI startups have a much bigger market opportunity than their Vertical Saas counterparts. Overall, the most clean, clear focus for VCs looking for AI exposure today seems like Vertical AI, with Agentic AI becoming hotter by the week.

But what happens if you combine the two? Yes, I’m talking about Vertical LLM Agents. And it’s not really me talking about it but YC’s top dog Garry Tan who shared a video about this exact topic with a pretty eye-catching headline of - “don’t rawdog your prompts.”

The video Garry shared is about why he (and others Silicon Valley VCs) see Vertical LLC Agents as the new billion dollar SaaS opportunity. And I think this is pretty interesting for a number of reasons, but the core one being - Vertical AI and Agentic AI might not fall into two separate buckets. As Agentic AI moves in like a tidal wave, I see the two converging into one since it’s very likely that the most pervasive form of Vertical AI, will be AI Agents, applied in a specific vertical, so the two in many ways become one and the same.

Speaking of agents, at the end of the week OpenAI surprised everyone with the release of Swarm which they describe as an “Educational framework exploring ergonomic, lightweight multi-agent orchestration.”

While Swarm is still brand new, like days old brand new, I think this is going to really open the door for faster iteration and an even greater focus on building and deploying AI Agents. And like I said above, while you can look at Agentic AI as it’s own category, I think you’ll see agents used either vertically or horizontally, and when they’re used vertically, well isn’t that just Vertical AI? I think it is.

Last week I didn’t go to a single event, or talk to a single person where AI Agents didn’t come up in the conversation. Just like Saas quickly became the buzzword of buzzwords years ago, “AI Agents” is clearly the next major foundational change, and where I think most new Vertical AI startups will put their focus. Now with OpenAI making it even easier to build agents, I think we’ll only see more teams building and releasing agents, at an even faster clip.

Menlo Ventures did a great job showing the current state of the AI Agents market in the Market Map above. As you can see - Vertical Agents and Vertical AI is half the market, and I think as the line between these two blurs we’ll see that Vertical AI as a whole is where a lot of the key innovation is going to happen over the next few years.

At the same time, there are Vertical AI companies that are going horizontal, in some cases without even announcing the move as Greg found with Harvey AI.

And last but not least, every week I want to make sure to take the time to highlight a new company in the Vertical AI space. By new I don’t mean a company that just raised a zillion dollars in funding, but instead a new company, out there pitching, on the road to building something incredible.

This week I felt it was only right to feature one of the companies that a16z had in their Speedrun pitch session at SF Tech Week. The company I’m highlighting is Story Engine and you can watch their pitch by clicking on the tweet below:

Okay, I told myself I’d try to make this issue shorter than the last, but I think I failed at that - there’s just too much going on! So I’ll end it there for now. Stay tuned next week for the next edition of The Vertical AI Report. Thanks for reading and have an awesome week 😎