Our friend and investor at ffvc, Katie Weiss, told a story in her weekly newsletter about her six-year-old daughter who had decided that the tooth fairy isn’t real, and how Katie used logic and Sora to “preserve the magic a little longer.”

“That whole exchange made me think about another type of “fairy tale”: projections. As a venture fund, we ask for them, fully aware that we’re often being handed a story only loosely tethered to reality. So why do we still value them? Why, like at home, do we try to keep the magic alive?

“Because the magic isn’t in the numbers, it’s in the mindset behind them. Hidden in those fictional spreadsheets are real signals: how a founder thinks, what they know, how they believe their business will evolve, and whether their vision holds up under pressure. If you know where to look, there’s a tremendous amount to learn from made-up numbers.”

As we’re in the waning days of the year and Christmas songs fill the air, no matter how wonderful and magical the season is, bad news, founders: there is no Santa Claus who’s going to stuff your stocking with funding. Here’s a better plan:

First, always tell a good story – and one that makes sense, especially in the current landscape, with new startups popping up every minute. What’s your superpower that’s going to put you ahead of the pack, and trust us, the investors have seen at least 10 other companies doing what you’re doing. This week alone.

There was a time when investors were looking for hockey stick growth, which founders love to promise and which  was doable back in the days when there were several million less websites competing for users’ attention. Traction, preferably with a recurring revenue model, is still top of mind with investors and as for hockey stick growth, with AI and particular ChatGPT, that concept may be back somewhat but is it sustainable over time, and we’re not even talking a very long time.

Back in 2023, Forbes reported that “ChatGPT Is The Fastest Growing App In The History Of Web Applications… Already at over one million users in just five days since launching.” All good, but here we are, just over three years later, and the technology that changed the world now has to change its focus. They saw hockey stick growth, to be sure, but at this juncture, the question more importantly is: does OpenAI know where the puck is going? “ChatGPT’s user growth has slowed, report finds,” TechCrunch noted. “The OpenAI-owned AI chatbot remains the leader in the space… However, Google’s Gemini has begun to outpace ChatGPT in terms of download growth, growth of monthly active users, and growth of time spent in app…That’s something OpenAI is now worried about, as its recent “code red” memo indicated. The missive, penned by OpenAI CEO Sam Altman, instructed staff to focus on improving the company’s AI products, particularly in areas like personalization, reliability, image generation, and more.

Which brings us to our next point: focus. We know that founders feel that investors are impressed with multiple revenue streams, but do they enhance the core product? Was OpenAI losing its focus and trying to be all things to all people, considering that Altman announced that “OpenAI will be pulling back on investments in areas like health, shopping and advertising as it works to prioritize ChatGPT,” said CNBC. Which Open AI VP & head of @chatgptapp @NickTurley confirmed in a tweet:

“Our focus now is to keep making ChatGPT more capable, continue growing, and expand access around the world — while making it feel even more intuitive and personal. Thanks for an incredible three years. Lots more to do!”

Which brings us to that all-important point: Don’t ignore user feedback. Case in point: Nick Turley’s post, to which @Codeforged_One, commented:   

“Pretty words are just lip service  @nickaturley,I lost something precious and important to me when you screwed around with 4o. I would like to believe you’d restore 4o, but the truth is I cannot trust your word, or your company at all. Too many underhanded things, too many changes that work against the user.”

And once the trust is gone, so is the user. They moved fast to break things and sure enough, at least in many users’ minds, they broke it.

Too big to fail? Maybe not, if you’re ignoring users just when you have Google et al nipping at your heels.

Typical three-year-old.

Which brings us to our next point: the AI bubble.

“Altman said this fall that ChatGPT now has more than 800 million weekly users. But the company, valued at $500 billion, doesn’t make a profit and has committed more than $1 trillion in financial obligations to the cloud computing providers and chipmakers it relies on to power its AI systems. The risk that OpenAI won’t make enough money to fulfill the expectations of backers like Oracle and Nvidia has amplified investor concerns about an AI bubble,” noted APNews.

To refresh your memory/impart a bit of tech history: what caused the Web 1 bubble to burst seems to be Altman’s playbook, chapter and verse: severe overspending and hasty expansion.

Don’t try this yourself at home, founders.

But no one ever accused Altman of not having been steadfast in his beliesf. “We’ve made a soft promise to investors that, ‘Once we build a generally intelligent system, that basically we will ask it to figure out a way to make an investment return for you,’” he said upon exiting Y Combinator back in 2019, TechCrunch reported.

Speaking of being handed a story only loosely tethered to reality, we’re guessing those returns will come from money that’ll no doubt be placed under Altman’s pillow by the tooth fairy. Onward and forward.