Notorious: The Musk Algorithm
Notorious: The Musk Algorithm
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The Musk Algorithm
Whether you like Elon or not, his ability to successfully build hard companies is irrefutable. I pulled this section from Walter Isaacson’s biography on Elon as I was struck by the clarity and simplicity of Elon’s framework:
“Question every requirement. Each should come with the name of the person who made it. You should never accept that a requirement came from a department, such as from “the legal department” or “the safety department”. You need to know the name of the real person who made that requirement. Then you should question it, no matter how smart that person is. Requirements from smart people are the most dangerous, because people are less likely to question them. Always do so, even if the requirement came from me. Then make the requirements less dumb.
Delete any part or process you can. You may have to add them back later. In fact, if you do not end up adding back at least 10% of them, then you didn’t delete enough.
Simplify and optimize. This should come after step two. A common mistake is to simplify and optimize a part or a process that should not exist.
Accelerate cycle time. Every process can be speeded up. But only do this after you have followed the first three steps. In the Tesla factory, I mistakenly spent a lot of time accelerating processes that I later realized should have been deleted.
Automate. That comes last. The big mistake in Nevada and at Fremont was that I began by trying to automate every step. We should have waited until all the requirements had been questioned, parts and processes deleted, and the bugs were shaken out.”
Although Musk is primarily discussing hardware assembly at Tesla and SpaceX factories, his insights are equally valuable for AI-powered startups and companies adopting AI for automation. The key takeaway is that automation should be the final step in a process. Preliminary work is required to delete unnecessary steps and simplify workflows before leveraging AI to automate the remaining crucial tasks. I've observed companies struggle when they prematurely apply AI to complex, multi-step workflows. The most successful teams break down processes into smaller steps, eliminate the unnecessary ones, simplify what's left, and then automate only what truly needs automating. This methodical approach ensures that AI is used effectively and efficiently, leading to better outcomes.
Thanks for reading. By way of background, I am an early-stage investor at Wing and a former founder. Please reach out to me on X @zacharydewitt or at zach@wing.vc. Some of the early-stage PLG + AI companies that I have the privilege to work with and learn from are: AirOps, Copy.ai, Deepgram, Hireguide, Slang.ai, Tango and Tome.
Operating Benchmarks (from PLG Startups):
I will continue to update these metrics and add new metrics. Let me know what metrics you want me to add (zach@wing.vc)
Organic Traffic (as % of all website traffic):
Great: 70%
Good: 50%
Conversion rate (website → free user):
Great: 10%
Good: 5%
Activation rate (free user → activated user):
Great: 50%
Good: 30%
Paid conversion rate (free user → paid user):
Freemium (Self Serve):
Great: 7%
Good: 4%
Freemium (Sales Assist):
Great: 12%
Good: 6%
Free Trial:
Great: 15%
Good: 8%
Reverse Trial:
Great: 15%
Good: 8%
Enterprise conversion rate (free user → enterprise plan):
Great: 4%
Good: 2%
3-month user retention (% of all users still using product after 3 months):
Great: 30%
Good: 15%
Conversion from waitlist to free user:
<1 month on waitlist: ~50%
>3 months on waitlist: 20%
For more detail on acqusition rates by channel (Organic, SEM, Social etc), please refer to this prior Notorious episode.
Financial Benchmarks (from PLG Public Companies):
Financial data as of previous business day market close.
Best-in-Class Benchmarking:
15 Highest EV/ NTM Revenue Multiples:
15 Biggest Stock Gainers (1 month):
Complete Dataset (click to zoom):
Note: TTM = Trailing Twelve Months; NTM = Next Twelve Months. Rule of 40 = TTM Revenue Growth % + FCF Margin %. GM-Adjusted CAC Payback = Change in Quarterly Revenue / (Gross Margin % * Prior Quarter Sales & Marketing Expense) * 12. Recent IPOs will have temporary “N/A”s as Wall Street Research has to wait to initiate converge.
Recent PLG + AI Financings:
Seed:
ChainML, an AI research and development company dedicated to shaping a better future powered by AI agents, has raised $6.2M. The round was led by Hack VC, with participation from Figment Capital, Huobi Ventures, Hypersphere Ventures, Alumni Ventures, NxGen xyz, Newtribe Capital, Inception Capital and Foresight Ventures.
Dosu, a GitHub AI teammate that helps users respond to issues, triage bugs, and build better documentation, has raised $8.52M. The round was led by Innovation Endeavors.
Eto, a modern data store for computer vision, built on open standards, has raised $11M at a $44M valuation. The round was led by CRV, with participation from Soma Capital, Tango VC, Wayfinder Ventures, Rogue Capital, E14 Fund, Swift Ventures, Essence Venture Capital and Y Combinator.
Founder AI, an automated fundraising agent that helps users identify investor leads, has raised $3M. The round was led by Pioneer Fund, Davidovs Venture Collective and Liquid2Ventures, with participation from AltaIR Capital, Rebel Fund and Y Combinator.
HoundDog.ai, a startup that helps developers ensure their code doesn’t leak personally identifiable information, has raised $3.1M. The round was led by E14 Fund, with participation from Mozilla Ventures.
Pythagora, an AI developer that builds apps through natural language interaction, has raised $4.3M. The round was funded by 500 Emerging Europe, Inovo VC, Moonfire, Rebel Fund, UpHonest Capital, Y Combinator, and SQ Capital.
Rollup, a collaborative platform designed to help teams build the next generation of complex hardware and models, has raised $5.6M. The round was led by Andreessen Horowitz and Thiel Capital, with participation from Space.VC, Alumni Ventures, JAM Fund, and Spacecadet Ventures.
Stack, a no-code generative artificial intelligence platform intended to automate enterprise-grade business processes, has raised $3M. The round was led by True Capital Partners, Lambda and Epakon Capital Management, with participation from Soma Capital, Beat Ventures, Gradient Ventures and Y Combinator.
Series A:
Gamma, an AI powered presentation platform, has raised $12M. The round was led by Accel, with participation from South Park Commons, Script Capital, Lorimer Ventures and Susa Fellows Fund.
Patronus AI, a company that makes a governance tool for LLMs, has raised $17M. The round was led by Notable Capital, with participation from Lightspeed Venture Partners, Factorial Capital and Datadog.
WitnessAI, a startup that applies risk-mitigating policies and safeguards to generative AI, has raised $27.5M. The funding was led by Ballistic Ventures and GV.
Rows, a collaborative cloud platform-based spreadsheet app, has raised $8.62M. The round was led by Indico Capital Partners, with participation from Cherry Ventures, Accel, Lakestar and Armilar Venture Partners.
Series B:
Coactive, an application programming interface designed to empower data practitioners and data-driven teams to unlock insights into unstructured image and video data, has raised $30M. The round was led by Cherryrock Capital and Emerson Collective, with participation from Andreessen Horowitz, Bessemer Venture Partners, Exceptional Capital, Tech Square Ventures and Greycroft.
Hebbia, a developer of user interfaces designed to improve use of Artificial General Intelligence (AGI), has raised $92.9M at a $705M valuation. The round was funded by undisclosed investors.
Hydrolix, a Portland, OR-based streaming data lake platform, has raised $35M. S3 Ventures led the round, and was joined by Nava Ventures, Wing Ventures, AV8 Ventures and Oregon Venture Fund.
Voxel51, an AI-based software designed to transform raw video footage and images into actionable intelligence, has raised $30M. The round was led by Bessemer Venture Partners, with participation from Tru Arrow Partners, Shasta Ventures, Drive Capital, Top Harvest Capital and iD Ventures America.
Series C:
Gorgias, a customer experience platform developing AI-powered solutions, has raised $28.5M at a $548.5M valuation. The round was led by SaaStr and Alven Capital Partners, with participation from Shopify, Horsley Bridge Partners, Amplify Partners, CRV, Sapphire Ventures and Transpose Platform Management.
PolyAI, a company that produces AI voice assistants for call centers, has raised $50M at a $500M valuation. The round was led by Hedosophia and NVentures, with Khosla Ventures and Point72 Ventures joining.
Series D:
Sigma, a cloud data warehouse analytics software designed to analyze complex databases, has raised $200M at a $1.8B valuation. The round was led by Avenir Growth Capital and Spark Capital, with participation from Snowflake Ventures, NewView Capital, Sutter Hill Ventures, Altimeter Capital Management, D1 Capital Partners and XN.
Series E:
Vercel, a cloud-based workflow platform intended to optimize the entire development and deployment experience for frontend teams, has raised $250M at a $3.25B valuation. The round was led by Accel, with participation from GV, 8VC, Tiger Global Management, Notable Capital, CRV, Bedrock Capital, Geodesic Capital and SV Angel.
Weka, a platform for building data pipelines that handle a range of data sources, types and sizes, has raised $140M. The round was led by Valor Equity Partners, with participation from Nvidia, Norwest Venture Partners, Micron Ventures, Qualcomm Ventures and Hitachi Ventures.
Series F:
Scale AI, a company that provides data-labeling services to companies that want to train machine learning models, has raised $1B at a $13.8B valuation. The round was led by Accel, with participation from Cisco Investments, DFJ Growth, Intel Capital, ServiceNow Ventures, AMD Ventures, WCM Industries, Amazon.com, Meta Platforms, Coatue Management, Spark Capital, Thrive Capital, Tiger Global Management, Greenoaks Capital Partners, Index Ventures, Founders Fund, Y Combinator, Nvidia, Geodesic Capital and Wellington Management.
Later Stage:
DeepL, a company that builds automated text translation and writing tools, has raised $300M at a $2B valuation. The round was led by Index Ventures, with participation from ICONIQ Growth, Teachers’ Venture Growth, IVP, Atomico and WiL.