VCs have a detailed playbook for investing in software-as-a-service (SaaS) companies that has served them well in recent years. Successful SaaS businesses provide predictable, recurring revenue that can be grown by acquiring more subscriptions at little additional cost, making them an attractive investment.
But the lessons that VCs have learned from their SaaS investments turn out not to be applicable to the world of artificial intelligence. AI companies follow a very different trajectory from SaaS providers, and the old rules simply aren’t valid.
Here are four things VCs get wrong about AI because of their past success investing in SaaS:
1. ARR growth is not the best indicator of long-term success in AI
Venture capitalists continue to pour money into AI companies at an astonishing — some might say ridiculous — rate. Databricks has raised a staggering $3.5 billion in funding, including a $1 billion Series G in February, followed six months later by a $1.6 billion Series H in August at a $38 billion valuation. DataRobot recently announced a $300 million Series G financing round, bringing its valuation to $6.3 billion.
While the private market is crazy for AI, the public market is showing signs of more rational behavior. Publicly traded C3.ai has lost 70% of its value relative to all-time high that it notched immediately after its IPO in December 2020. In early September 2021, the company released fiscal Q1 results, which were a cause for further disappointment in the stock that caused a further dip of nearly 10%.
Continue reading: https://venturebeat.com/2021/10/24/4-things-vcs-get-wrong-about-ai/
But the lessons that VCs have learned from their SaaS investments turn out not to be applicable to the world of artificial intelligence. AI companies follow a very different trajectory from SaaS providers, and the old rules simply aren’t valid.
Here are four things VCs get wrong about AI because of their past success investing in SaaS:
1. ARR growth is not the best indicator of long-term success in AI
Venture capitalists continue to pour money into AI companies at an astonishing — some might say ridiculous — rate. Databricks has raised a staggering $3.5 billion in funding, including a $1 billion Series G in February, followed six months later by a $1.6 billion Series H in August at a $38 billion valuation. DataRobot recently announced a $300 million Series G financing round, bringing its valuation to $6.3 billion.
While the private market is crazy for AI, the public market is showing signs of more rational behavior. Publicly traded C3.ai has lost 70% of its value relative to all-time high that it notched immediately after its IPO in December 2020. In early September 2021, the company released fiscal Q1 results, which were a cause for further disappointment in the stock that caused a further dip of nearly 10%.
Continue reading: https://venturebeat.com/2021/10/24/4-things-vcs-get-wrong-about-ai/
