The last 2 years have been unreal for AI startups. It won't be a hyperbole to say we are living in the #AI age. Global investors have poured billions into AI startups. Many of us think it's a bubble that will eventually burst. AI evangelists consider AI sceptics fools. Y Combinator, popularly known as YC, is betting the house on AI startups. The share of AI-powered #startups in the last 3 YC batches has doubled. Winter 24 cohort – 70% Summer 24 cohort – 57% Winter 23 cohort – 32% Non-AI #founders are bewildered about how pre-revenue or even pre-product AI startups are raising millions of dollars at astronomical valuations while they are struggling to get $5M valuations at $1M annual revenue. The truth is AI startups represent a moonshot opportunity for early-stage investors. There's a tiny chance that an AI investment will become 500x or 1,000x. All VCs are trying to find and invest in such startups. You might be running a decently successful early-stage agri, logistics, or consumer brand startup in #India with an annual revenue of $1–2 M. You are also trying to keep your burn as low as possible. By all means, you are doing a commendable job. However, there will be an expectation mismatch between you and the investors when you go out in the #venturecapital market to raise money. You might think you deserve a $20M–30M valuation considering how these AI brats are getting $10–20M even when their product is not ready. Unfortunately for you, the reality is different. If a few VCs like your business, they might want to invest $2M at a $8M valuation. You would secretly curse them and complain that life is unfair. But take their money. It's better than getting zero at a $20M valuation. The key difference between you and the AI startups is the potential payoffs. In rare cases, AI investors will get a 1,000x return on their capital. It won't happen when investing in consumer brands, agri-techs, or logistics companies. This lack of 500x possible upside limits your valuation and VC interest. This is the state of the venture capital industry in 2024. It will change, but we don't know when. However, a new #technology will surpass AI. Finally, here is an old-school thought. "In behavioural finance, herd mentality bias refers to investors' tendency to follow and copy what other investors are doing. They are largely influenced by emotion and instinct, rather than by their independent analysis." Corporate Finance Instititute I conduct workshops teaching founders how to raise capital. The next one (a 9-hour Boot Camp) is this weekend (5th & 6th of October). Email me at [email protected] if you would like to join it.
Refat Ametov
2mo
The current AI wave is driven by the potential for massive returns, but it doesn’t mean other sectors aren’t valuable. Staying patient and strategic with the right investors is crucial.
Sandeep Balaji
2mo
Well Pushkar Singh this #Al wave shall doom. I rather be selling something to all the #AI startups and needle in a hay stack finding investors!
Nivruti Gala
2mo
Its better not to compare with these AI startups and improve themselves:) Wonder advice as usual Pushkar Singh
Business Strategy
2moThe real value of business lies in actually delivering something which is tangible and can be used by people in day to day. AI is just an enabler which probably the VC's are hoping to be a game changer . In my opinion it is more of a B2B product/solution/enabler rather than B2C or even B2B2C (Except leaving very few professionals who are probably developing something in Tech space) Pushkar Singh