AI-Native Firms

The authors study how firms built around AI capabilities—“AI-native” firms—are organized. Drawing on Y Combinator batches W20–F24 and U.S. venture-backed startups whose first financing closed between 2020 and 2024, they classify each firm’s AI-native status and link it to workforce microdata on team size, function, seniority, and hierarchy. Relative to non-AI startups in the same industry-cohort, AI-native firms are 25% smaller. Their share of engineers is 13% greater, and the shares of entry-level workers and managers are each roughly 15% lower. Their hierarchies are half a seniority level flatter—yet valuations are comparable, suggesting higher value created per employee. The authors argue these patterns reflect two channels: a process channel, in which AI changes how people work inside the firm, and a product channel, in which AI capabilities are built into what the firm sells. Using text from product descriptions and job postings, the authors find that embedding AI into the product, beyond layering on AI tools into existing workflows, is a primary way startups are scaling “knowledge work” without large teams of knowledge workers.