The Most Exciting Software Category I've Seen in Years

Why AI education startups are about to change everything (if they solve one crucial problem)

A mentor once gave me this counterintuitive mantra, “A good tech startup sounds dumb and hard, while a bad startup sounds smart and easy.”

His point was companies that are easy to think up are ones whose markets are riddled with competition. In fact, if you think a startup is easy, you probably don’t fully understand the problem you’re trying to solve. All startups are breathtakingly hard.

This is why I have so many mixed feelings about the interweaving of AI and education. It is an opportunity that sounds obvious and easy:

• Schools bucket our kids on the basis of age rather than skill. This results in some kids being bored and held back, while others are pushed on before they are ready.

• Adult learners don’t even have schools! They have jobs, and jobs are terrible places to learn things. A 2024 poll from Gallup found that only 26% of U.S. employees “strongly agree” that their organization encourages them to learn new skills.

• LLMs have every textbook ever written contained within them.

• AI is excellent at generating content that gets people very engaged.

• Put all of those together, and theoretically, you can teach anything to anyone.

This makes for a good story. A compelling one even. It has been told by those at the highest levels of AI by Bill Gates, Sam Altman, Jensen Huang, Elon Musk, and others, who have all mentioned the value that AI tutors can bring to the world. However, almost all those quotes are from 2023. And even though this idea sounds really good, the ghosts of mentors' past are warning me to be careful. So, I’ve spent the last few months playing with various AI tutor products, exploring the possibilities they offer, and interviewing AI education tool founders to understand their vision.

I’m excited to report that there is real, meaningful potential here. Not just hyperbole shot off by Sam Altman, but actual technology products that could scale to billions in revenue, while simultaneously creating a general populace that is smarter and more capable.

Perhaps even better, the market is wide open. While there are many great startups out there, they are still early and operate at a relatively small scale. A talented operator or investor should partner with these startups (or form something new) and go after this opportunity.

It is rare for software to get me this excited anymore, but this category does. Billions on the line and a better society at the same time? Game on. For paid subscribers to The Leverage, I’m going to profile some of the hard tradeoffs these companies are making, their bets, and the additional opportunities I see in the market.