Narrator (5:53)

SEMA gives us the operating orchestration, context extraction and digital teams. Now let's look at the clearest industry where this becomes unavoidable. Angela Strange focuses on financial services and insurance, where unified data and parallelized workflows make it possible to replace legacy cores and unlock speed, margin and scale. Here's Angela.

Angela Strange (6:14)

I'm Angela Strange, a general partner on the AI applications fund. And my big idea for 2026 is there will be a dramatic turning point coming to financial services and insurance. Or finally, the risk of not replacing legacy systems or will exceed the risk of change. It's already happening. Major institutions will let long standing contracts lapse and implement their newer AI native competitors. Why? The next generation of infrastructure doesn't just add AI. They unify the data from legacy cores, from external systems, from unstructured data into a new system of record, enabling FIs not only to scale, but to take full advantage of AI. When this happens, there are three major changes that are important for both customers and builders. One, workflows will finally become parallelized. No more bouncing between screens. Cut pasting data. For instance, your mortgage team could see the 400 plus tasks that are needed to underwrite your loan. Do them in parallel and even have agents do some of the more mundane ones for you to check later. Second, the categories as we know them are going to expand. For instance, customer data from onboarding, kyc, kyb, transaction monitoring, even how those customers behave with your customer service team could all sit into a single risk platform. Brings together fraud risk compliance much more effectively. And then third, most excitingly for the builders the new winners here will be 10x bigger. Not only because those software categories are bigger, but because software is able to consume a lot of the labor that humans didn't want to do anyways or that banks or insurance companies couldn't hire for fast enough. So as the saying goes, it's not AI that's the competition, it's your competitors using AI. So the best banks, the best insurance companies will fix their plumbing and enable them to take full advantage and be the most competitive going into the next decade. Companies have been talking about this for decades. Why is it different now? Primarily three reasons. One, we have to remember that many of these companies still live on mainframes. Decades old mainframes and their systems were already on the verge of breaking with the scale. Two, now companies see that they're leaving a lot of revenue on the table by not being able to take advantage of AI. For instance, in insurance, underwriters sometimes can't even get to the demand that they have because they're not able to process it fast enough. They can't bring in the documents, they can't scan them. This is a huge revenue upside that can be captured if you get the right system and you layer AI on top. Third, there are strong viable options of this next generation of AI. First software built by entrepreneurs who deeply understand your industry, are deeply technical, and have entirely re architected your platforms to one, enable you to scale and two, be incredibly flexible in terms of how you can add AI on now and in the future. I see a ton of opportunity here and potentially a dramatic reordering of the winners and losers of incumbent companies based on who become the early adopters of some of these new platforms. And we're already seeing it. There's some banks and there's some insurance companies that are starting to get the reputation of being forward thinking, easier to work with, wanting to lean in. And those companies in some areas, like mortgage servicing, have been able to turn areas of their business from 5% margin businesses to 50% margin businesses. And you imagine doing that across your company as quickly as possible. It's going to make a much bigger difference against your competitor that maybe takes two or three years to catch up. One of the reasons as an investor that I get so excited about infrastructure is that it's beautiful infrastructure that enables beautiful consumer experiences and beautiful business experiences. For instance, why does your bank market products to you that you already have? It's because your customer data sits in all of these different sectors. Why can't customer service agent A answer questions about customer service? B if you call in about your banking operations now, imagine the future of a unified data layer and incredibly smart people supplemented by agents that can understand your needs, help you with any product you already have, anticipate your needs in the future. That would be a beautiful experience for both customers and businesses. In 2026, we're going to see a dramatic acceleration for any company that has built a new AI first platform that sells into this large industry. But the opportunity is massive. So if you're a founder who deeply understands or is deeply curious about any archaic aspects of banking or insurance, the opportunity is now, you can build your software faster and customers are ready to buy.

Narrator (11:12)

Angela makes the case for why this happens now. Modern platforms unify data and agents can run work in parallel, changing both the customer experience and the economics. Next is the product implication. What does this orchestration layer look like inside the software itself? Alex Immerman describes vertical AI moving into multiplayer mode, where multiple humans and multiple agents collaborate inside a workflow with explicit trust rules and a command center interface that separates what agents can execute from what humans need to review.

Alex Immerman (11:41)

Here's Alex My big idea for 2026 is vertical AI is going to evolve from information retrieval and reasoning to multiplayer mode. Vertical software is having a moment. But vertical software was cool before ChatGPT, Shopify, Viva, Procore, Toast have all scaled to tens or even hundreds of billions of market cap huge companies. But vertical AI companies, they're growing faster. Faster than historical precedents that we saw in SaaS. One of the cool aspects that we're all talking about with AI is how agents are replacing labor. It's easier to replace a lawyer than it is to replace a generalist. Building for a vertical building for a specific type of employee means deep integrations, proprietary data, specialized interfaces that a horizontal, as much as I love chatgpt is not going to be as good at. We've observed vertical AI evolve across three phases. First was information retrieval. You read some documents, you extract information and you might summarize it. The second came this year in 2025. Reasoning. Reasoning capabilities have been really impactful for vertical software businesses. With Hebbia, you're analyzing financial statements and building models with basis. You're able to reconcile trial balances. And with Elise AI, you're able to diagnose what the maintenance issue is and contact the right vendor. The problem is that with all complex work, there's collaboration. Multiplayer Mode is required. 2026 is when multiplayer mode comes into gear. If you want to accomplish not just a discrete task, but the full job you need to be able to collaborate with others. So multi human and multi agent collaboration is on its way. And with that the value of these platforms increases and the switching costs rise, which is really exciting. As we think about defensibility of these platforms, vertical apps have been criticized that they're not very defensible in this AI era. Will they stand the test of time? The best ones absolutely will. A couple attributes that I look for with vertical apps. One brand There's a high referenceability in vertical markets. The customers all go to the same conferences, they go to dinner together. And so Elise AI has emerged as the brand in property management. All the customers, all the large property managers know them when they think of AI. A second mode is proprietary technology or IP anduril in defense flock safety and public safety. Waymo or applied intuition in autonomy. Really difficult to build technology difficult to replicate. And then coming back network effects. With multiplayer mode, as more agents and more humans find increasing value on the platform, switching costs rise and no one's leaving the platform. We expect that to merge and be an important part of the 2026 story. One of the biggest obstacles to getting to multiplayer mode is building trust. There needs to be AI operating agreements, understandings of when an agent can act on behalf or when they need to flag an issue to their human. Initially they might be able to schedule a meeting for you, but in the future, as they built more and more trust, they could be on the front lines negotiating. So let's paint that picture. You're in an M and A transaction. Your agent has built up trust. They have the responsibility to go negotiate. You've set parameters. So if you're the sell side, you're selling a business, you set the minimum price that you're willing to come to terms on. And then the buy side agent, well they'll set the max they're willing to pay. And if those two cross, great, you can get to a high level agreement. But there's going to be outstanding questions like what's the working capital arrangement at close? Or how to deal with contingencies or earnouts. The agent may not have the information to negotiate on their behalf, so that gets flagged up. And so software won't be just another chat interface, but you can think of it as a command center. There is a list of activities that are being negotiated on that agents have full ability to go and act. And then there's a separate section, the flags where humans need to engage and take action. I'm really excited to see these new user interfaces, but what I'm more excited about is where work becomes less about doing and more about reviewing.

Narrator (17:01)

Alex shows what AI runs the workflow becomes in practice. Collaboration, operating agreements and interfaces designed around review and escalation. To close we need the commercial filter, which AI systems will actually win and persist. David Haber argues the strongest companies are the ones where AI reinforces the business model driving revenue and outcomes, not just cost reduction and building defensibility through workflow ownership and proprietary outcomes data. Here's David.

David Haberer (17:29)

Hey, I'm David Haberer, general partner here at a16C and I help co lead the AI apps fund. My big idea for 2026 is looking for companies where AI reinforces the business model. I think there's a lot of narrative around AI helping automate work and reducing cost. But I think in instances where AI is actually reinforcing the business model in driving revenue, there's really no limit to the amount that customers may want to adopt that technology. And so the market pull and examples like that are just, you know, so much stronger than those where it's just a cost reduction story. I sit on the board of a company called Eve which operates in the plaintiff law space. And what's unique about plaintiff law is that those attorneys don't charge by the hour. They operate on a contingency basis, which means that they only get paid if they win. And so again, while AI is helping automate a lot of the drafting and reasoning work that they do, ultimately it's really about enabling them to take on more clients and make more money so it doesn't erode the billable hour. It really reinforces their business model. And as a result the market pull for Eve's kind of AI workspace has just been tremendous. Another example in our portfolio is a company called Salient which operates in the loan servicing space. So they're applying voice agents to they started in auto lending, but they've expanded to a whole ecosystem of kind of consumer lending products where a voice agent can speak in 50 languages, fully compliantly, track UDAP, do welcome calls and pay reminders. And obviously there is a cost reduction story in that it is helping drive efficiencies in many of these bank and non bank lenders who have large call centers. But I think what they found which is so remarkable is that the voice agents are actually driving better collection rates. So it's not just a cost reduction story, it's actually delivering better outcomes for their end customers and it's a result of it's reinforcing the lender business model. Ultimately where did the sources of compounding competitive advantage reside in AI applications and I think EVE is a really unique example and case study for this. Ultimately, the founders of EVE had a vision for owning the kind of end to end workflow from intake to outcome and I think deeply embedding yourself within your customer, having them live within the product every day is a source of defensibility. I think they are also creating a really unique data asset, right? Ultimately by being able to process cases again from intake all the way to outcomes. That outcomes data is not public, right? That is not a source of information that you know, model companies and labs can actually train on in the public Internet. And so ultimately that outcomes data is used to better inform smarter intake so that EVE can tell their customers, look, this case has these characteristics to potentially be worth, you know, $50,000. This case is potentially worth $5 million. Here's how you may want to triage, you know, your labor and your time and ultimately given this counterparty, what are the characteristics that you may want to put into a demand letter to actually affect better outcomes? And so I think the more cases that eaves processes, the smarter and more powerful the platform becomes, again ultimately reinforcing the business model for their clients.

Narrator (20:36)

Here's the connective tissue across all four ideas, the shift from isolated tools to coordinated agent teams and why context becomes the gating factor. Angela the turning point where legacy replacement accelerates because unified data and parallel workflows unlock speed and margin. Alex what the software becomes in practice Multiplayer collaboration, trust rules and command center UX built around review. David what wins commercially? Platforms embedded end to end that measurably improve outcomes and reinforce how customers create value. That's the enterprise orchestration layer. Not a chatbot and not a feature, but a new way work flows through the company. Thanks for listening to this episode of the A16Z podcast. If you liked this episode, be sure to like, comment, subscribe, leave us a rating or review and share it with your friends. If you family for more episodes go to YouTube, Apple Podcasts and Spotify. Follow us on x16z and subscribe to our substack@a16z.substack.com thanks again for listening and I'll see you in the next episode. As a reminder, the content here is for informational purposes only, should not be taken as legal, business, tax or investment advice or be used to evaluate any investment or security, and is not directed at any investors or potential potential investors in any A16Z fund. Please note that A16Z and its affiliates may also maintain investments in the companies discussed in this podcast. For more details, including a link to our investments, please see a16z.com disclosures.