This Week in Vertical Tech

Thrive announces an OpenAI partnership, Unlimited, and Norm Law

Good afternoon and happy Friday,

Today, we’ve got a roundup of the three biggest stories of the week:

Thrive Holdings partners with OpenAI

This is a killer partnership for both sides of the deal. Labs need data, industry environments, and human feedback and AI-rollups need talent for model improvement, strategy, and more.

That said, I think you could draw an inference that everyone’s timelines on AI development should be extended and this deal brings into question most rollup strategies with generative AI.

To put it succinctly, if you need OpenAI to be on your cap table and you need premier AI talent in order to get meaningful unit economics improvement inside these businesses, the costs associated with that talent inside the business are going to skyrocket.

At some point if it’s truly this difficult to get industry-specific agents to work, why own the underlying businesses vs. pioneer an agent lab that works to assemble the data, model finetuning, and human feedback without the drag from operating the existing businesses on top? There’s signs that real moats for agent labs are developing due to this complexity.

That said, you could also paint a picture of a compounding advantage in any rollup strategy that features OpenAI on the cap table. Maybe it’s difficult to implement. Maybe it’s difficult to get agents to directly improve accounting workflows outside of document extraction. But if it’s difficult for me and I’ve got OpenAI on my cap table and engineering talent out the wazoo, then it’s going to be nigh impossible for others.¹ And that certainly feels like a moat.

Norm Law: Software then Services

Norm.ai recently announced the creation of Norm Law alongside a $50m investment from Blackstone. Norm.ai has gotten its start developing compliance agents for some of the most important financial institutions across the industry.

Now, they’re expanding from a more traditional SaaS play into providing legal services themselves. I’m very interested to see how this goes. In my view, it makes complete sense. Norm already internally has tons of legal talent, has a true software and AI advantage, and can likely monetize higher-value legal services than probably what they can obtain just from pure SaaS revenue (even though those SaaS contracts are in the seven figures).

We’ve seen firms go from services to software. Are we going to see an advent of software companies becoming service companies as they accumulate a true data advantage and people advantage?

Unlimited announces a $12m Seed to build a vertically-integrated EPC

Unlimited came out of stealth this week to announce a new construction company. Importantly, they are an AI-enabled service around engineering and design services.

With the boom in data center investment, there’s billions of dollars in infrastructure projects up for grabs. Unlimited is betting that they can use engineering and design services as a way to grab a share of this pie.

Can better AI-empowered design services lead to a large vertically-integrated construction company?

Funny you should ask! About a month ago, I asked the same question to a senior exec at a large EPC. My hunch was and still is that there’s a path from design services to do this sort of vertical integration.

His take? There’s certainly something there, but unless you’re solving the massive labor shortage in construction as part of it, it’s really tough to solve and may be the wrong starting point. Effectively, labor is the constraint on EPCs and projects. There’s billions in contracts that they can’t bid because there’s simply not enough construction labor.

But solve the labor issue? There’s billions in revenues up for grabs.

And I think there’s some really great strategies for an enterprising company that wanted to solve this sort of labor coordination around the EPC.

Around the Ecosystem:

• A must-read piece on Epic Systems.

• A vision for Healthcare AI from 8VC

That’s all for this week. Next week, a deeper dive into healthcare AI and a Verticalized report for paid subscribers on Recommerce Trends.

Thanks again for reading!

1. I think this position would make you bearish on AI’s economic prospects in general.