How to start an AI Startup in early 2026

Last month I gave lecture at Globis University on what it takes to build an AI startup today. It's no longer early days for AI, and most founders don't have the connections and resources that drive toady's multi-billion dollar seed rounds. However, as I detail, they still have several paths to success. After the lecture I am joined on stage for a panel discussion by Reiji Yamanaka, the managing director of the Kibo Impact Investment Fund, and Kelvin Song, the program director of the Globis MBA program. It's a fascinating discussion, and I think you'll enjoy it. Leave a comment   Transcript Welcome to Disrupting Japan, straight talk from Japan's most innovative founders and VCs. I'm Tim Romero, and thanks for joining me. I have a special in-between episode for you today. A few weeks back at Globis University, I gave a lecture to aspiring founders on the best way to start a generative AI startup right now in this time of intense AI competition and funding levels. I cover the different AI business models, promising application spaces, and how to know if you've got an AI startup idea with a good chance of success. Now, the first 30 minutes of this episode is the lecture itself, and then I'm joined on stage by Reiji Yamanaka, the managing director of the Kibo Impact Investment Fund, and Kelvin Song, the program director of the Globis MBA program. And we dive even deeper into these ideas and also talk about how generative AI is likely to affect us all. I hope you enjoy it. So let's get right to the presentation.   Presentation Today we're going to talk about how to build a generative AI startup and some important things to keep in mind if you actually decide to do that. Now, before I tell you what we're going to cover, I want to kind of tell you what we are explicitly not going to cover. So first, we're not going to talk about the transformative nature of AI in general, the explosive growth of the market. There's already way too much chatter about that, and I assume if you're even thinking about starting an AI startup, you already know it. Second, I'm not going to offer general advice about starting and growing a startups, although this is a topic that's very close to my heart. I want to focus on what can add the most value to you in this particular seminar. If you want to talk about general start advice, talk to me later. I'll point you in the right direction or ask questions afterwards or during the panel discussion. We'll begin today by talking about four common exit and growth strategies. This is a bit unusual. I don't normally recommend that seed or pre-seed companies focus too much on exit strategy, but these are not normal times. With generative AI, you need to plan your end game from the very beginning. We'll spend the bulk of our time talking about actually building your AI startup. We'll cover some key strategic considerations, and also talk about a few of the most promising targets for AI disruption. Does that sound good? Well, before we get to it, why should you listen to me? And that's a totally reasonable question. So, I've been in Japan for, wow, over 30 years now. Currently a partner at Jira Ventures. It's $300 million corporate venture capital firm that invests in green energy, next generation energy, generation technologies. But in my time here, I've started four of my own startups I've sold two, bankrupted two. So, 50 50, not too bad as far as startups go. I've done a lot of angel investing. I've taught entrepreneurship and corporate innovation at New York University's, Tokyo Campus. I've brought foreign startups into Japan as a country manager. I was tapped by TEPCO to come in and help them spin up TEPCO Ventures. I left TEPCO to run Google for Startups, Japan, swearing I would never go back to energy CVC. After four years at Google, I decided to go back to energy CVC because right now what's happening in energy is just fantastically exciting. Oh, and I also run a podcast called Disrupting Japan, where we sit down and we talk with Japanese startup founders and VCs, not so much about their specific company or portfolio, but what it's like to be an innovator in a culture that really prizes, conformity and what problems these startups are trying to solve. So, you know, please like, and subscribe and all that. Okay, let's get into it. Let's talk about your exit strategy and the possible business models that stem from it. Now, as I mentioned before, this is not the usual way of doing things. At seed stage, founders don't normally need to think too deeply about the exit strategy. If you build a rapidly scaling business that adds value to your customers, M&As IPOs, both paths remain open to you and it'll eventually become clear to you which is your best option. It's not something you normally try to optimize for, not at seed anyway. However, these are not normal times, and if you're building a generative AI startup, your exit strategy will greatly influence how you run your business. So, the four exit and growth models in increasing order of complexity are the Peter Pan, riding the hype, rapid customer growth and sustainable revenue growth. Now, we're going to move really quickly through the Peter Pan and riding the hype, since they don't really require growth at all. And honestly, only sustainable revenue growth needs a path to profitability. So we'll be spending by far the most time on that one because sustainable revenue growth, it's the most flexible, it's the most complex, and in most cases, it'll give you the greatest chance for success. Now, as a founder, you need to understand your options and consciously make a choice of what your goal is. And on the other hand, if you're thinking of joining a startup, you need to make sure that you're a hundred percent aligned with the strategy that startups actually executing. Not just the one they're saying they're executing. Now, before we get into the details, I need to point out that, that even if you fully embrace the potential of AI, and it's transformative nature, the VC market has never seen anything like this level of hype and focus. We're already way beyond what we saw during the dotcom area. So, just how hot is the AI market right now? Well, it's stupidly hot right now. Between 60 and 70% of all VC investment is flowing into AI startups. In fact, if you remove the AI investments, VC investment is actually down sharply. So yeah, these are not normal times. So, let's talk about exit and growth strategies. First, the Peter Pan, also known as I'll Never Grow Up. Now this is not a serious strategy, but sadly, it's the one that most startups are executing either consciously or unconsciously. They raise some pre-seed, maybe some seed money. They play with some cool AI tools, they ship a me too product, and then they disappear in a year or two when they can't raise a Series A. Now I include this for two reasons. One, because like a surprising number of founders seem to be fine doing this. Some people just seem to want to have a founder experience and run what I've heard called a starter startup, which I mean, if that's what you want to do, fine. But it seems like kind of a waste of everyone's time. We are here at the beginning of what might be one of the most important transformative shifts in technology. And man, it makes sense to swing for the fences. Don't waste your time chasing small dreams on this. And two, I include the Peter Pan model for those that are thinking of joining an AI startup. If you're thinking of joining a team that is not clearly executing one of these other strategies, they're probably never going to grow up and you're probably wasting your time with them. Okay, let's move on to more profitable strategies. Our second strategy is to ride the hype. Now, I mean, all startups need to do this to some extent. We see hype driven business plans in every hot startup sector, but I mean, AI has everything dialed up to 11. Riding the hype is a pure play. This is pure marketing. Your product is your stock. It's a very good play for the right kind of team. So, what do I mean? We saw safe super intelligence raise a pre-seed round at a $5 billion valuation. They got a nice step up to a $30 billion valuation at seed. Thinking machines just raised 12 billion. Open AI acquired Johnny Ivey’s IO for 6.5 billion on the promise that they would eventually build something cool. Now, these are obviously really big numbers, but if you haven't worked in VC or startups for a while, it might not be apparent just how bonkers these numbers really are. So, when investors invest in seed startups, they're generally looking for a path to a hundred times return. They're not expecting a hundred times return, but they need a path to it. Now, even assuming these are somehow special, they're only looking for 50 times return or 30 times return. This is implying a trillion dollar exit, which would make it not only the biggest startup exit in all history, not only twice as big as the biggest startup exit in all history, but twice as big as the next five biggest startup exits in history combined. And that's not, keep in mind, this is not a bet on the technology. This is a bet on one particular company. So, yeah, thing things are things are a little frothy. Now, these valuations are based on the star power of the founders, and that's important to note that none of these companies have an actual product or even a prototype yet. So, shipping a product is actually a very dangerous step for hype driven companies because that's when people are able to compare the hype and the reality, and very often the reality just doesn't live up to the hype. But anyway, if you are extremely well known in the industry and you can line up an A-list VC to give you that credibility with other investors and to help you exit when the time comes, this could work for you, ride that hype as far as it'll take you. Generally however,