The data-driven research, which analyses the early-stage market by assessing founders, funding, and product, outlines the impact that AI is having.

Jos White, General Partner at Notion Capital, comments: “AI is not just impacting the products that early-stage software companies are developing, but also how those start-ups are working. It’s a major shift that is comparable to the disruption that the Cloud brought about 15 years ago. AI represents a new platform that paves the way for a whole new generation of software companies creating a major shift in the market.”  

Key findings

50% of companies in the CC100 are AI native, compared to 25% last year. AI native startups are posing a credible threat to incumbent software companies by offering cheaper or better alternatives.

Early-stage companies are dramatically smaller, with a median team size of 14 (compared to last year’s median of 25). White comments: “This represents a shift to the ultra-lean organisation, where there is more quality and less quantity when it comes to headcount. Roles are becoming more specialised, the middle layer is shrinking and companies are pushing for greater efficiency.”

White also refers to the ‘two-pizza rule’ popularised by Jeff Bezos, who, as CEO of Amazon said that a team should be small enough to be fed by two pizzas. Given the trend that the Notion Capital research has identified, software startups will need one less pizza than before.

In the past, explains White, a rising headcount could have been a proxy for a startups growth – that is no longer the case. “Increasingly smaller teams will mean better companies as this will be an indicator of how successfully they are leveraging AI technology.” 

The largest category of companies in the CC100 is building tools for developers, comprising 18% of the list – compared to 12% last year. Many companies are applying AI to automate the manual work that used to be done by developers. AI is also changing how products are marketed, bought and sold, with Sales & Marketing being the second-largest category, making up 12% of the list. Meanwhile, the share of fintech companies has decreased, comprising 5% of the list – falling from last year’s figure of 12%. Other categories that are noteworthy include energy (10%), health (6%), cybersecurity (5%) and industrial technology (3%).

The performance of last year’s cohort points to Notion Capital’s robust methodology in identifying the startups most likely to succeed. Within 12 months of last year’s report, 37% of the Top 100 companies secured their next funding round, compared to a benchmark of only 19% of European companies reaching this milestone within 36 months (according to Dealroom data). The companies in last year’s list collectively raised $510 million in follow-on funding, with an average round size of $13.1 million across 37 businesses.

“When we started this research in 2020, many thought that it wasn’t possible to identify the most promising startups because of the lack of data. Our methodology looks at the founders, funding and products of companies from an ecosystem of more than 20,000 has been successful in identifying the most successful companies – as the performance of last year’s cohort shows,” says White.

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