Budgeting for AI in Your Startup
For the last decade, the biggest line item in any startup’s R&D budget was predictable talent. But AI is pushing its way onto the P&L.
How much should a startup spend on AI as a percentage of its research and development spend?
10%? 30%? 60?
There are three factors to consider. First, the average salary for a software engineer in Silicon Valley. Second is the total cost of AI used by that engineer. Cursor is now at $200 per month for their Ultra Plan & reviews of Devin suggest $500 per month. Third, the number of agents an engineer can manage.
A first pass :
| Item1 | Cost/Year |
|---|---|
| Software Engineer Salary | $200,000 |
| Agent Subscription | $18,000 ($6,000 x 3) |
| Total Cost | $218,000 |
| AI % of Total | 9% |
But the subscription costs are probably low. Over the last few days I’ve been playing around extensively with AI coding agents and I racked up a bill of $1,000 within the span of five days! 😳😅
So let’s update the table and assume another $1000 per month per engineer.
| Item | Cost/Year |
|---|---|
| Software Engineer Salary | $200,000 |
| Agent Subscription | $18,000 |
| Additional AI Costs2 | $12,000 |
| Total Cost | $230,000 |
| AI % of Total | 13% |
So for a typical startup, an estimate of 10 to 15% of total R&D expense today might conceivably be used for AI.
The variants will be much broader in practice as we all learn to use AI better and it penetrates more of the organization. Smaller companies that are AI native from the outset are likely to have significantly higher ratios.
If you’re interested to participate in an anonymous survey, I will be publishing the results if the sample size is sufficiently large to have a statistically significant result.