The AI Investment Boom: Will it Lead to a New Gold Rush?

Good morning MRR lovers,

More AI this week and a couple of surprises, including this one 👇

I hope you are ready for Season 2 😂

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• 👑 With billions of dollars in investments and soaring valuations, is a new era of gold rush beginning in the field of AI development?

• 📊 Many large SaaS companies are currently prioritizing sales and marketing over product development. This presents a window of opportunity for the next wave of SaaS startups.

• 🍟 Extra Fries: Iron Pillar closes $129M fund to invest in global cloud companies from India and Startup Wise Guys offers acceleration program for early-stage digital B2B SaaS startups in East and West Africa.

• 💸 +6 Funding Rounds

The AI Surge: A Beacon of Light for the Tech World

• Venture-capital firms and large tech companies are pouring billions of dollars into AI technology. In 2022, VCs invested $4.5 billion in Generative AI.

• Also, there were nearly 800,000 AI-related job openings in the U.S. last year, led by California’s 142,000 openings, according to data by Stanford University.

• Based on nine deals tracked by PitchBook through March 29, the median pre-money valuation for generative AI firms has jumped to $90 million in 2023 from $42.5 million in 2022.

• This surge in AI development is also bringing some millennials back to the Bay Area.

• Has a new era of gold rush begun?

The Dark Side of SaaS: Why Big Companies Neglect Product Improvements

Our friend Alex, from Keen Strategies, wrote a post this week that caught my attention. Here's what I learned from it:

• SaaS is well-known for having great profit margins. One would expect companies to take advantage of this opportunity by reinvesting their cash into product development. However, this is far from the truth!

• On average, public SaaS companies spend almost twice as much on sales and marketing (S&M) as on product development (R&D), while general administration (GA) spending is almost equal to R&D spending.

• But why is this? The high gross margins of SaaS companies make them less incentivized to innovate, leading them to prioritize winning deals over creating new value for customers.

• Furthermore, this behavior can be burdensome for new startups. The cost of software production is artificially high and always rising (high salaries play a direct role in high software production costs), making it difficult for new companies to compete.

So, will startups ever be able to compete with the big boys?

• Absolutely. For one, startups benefit right away by keeping teams small; it allows them to move faster and keep expenses low.

• In addition, developing a strong familiarity with the market and customers’ needs can significantly accelerate a company’s path to success. Case in point: How Satya Nadella reimagined Microsoft.

• In other words, the importance of trusting the instincts of founders and those who have been around for a long time and really know the customer should not be underestimated.

• Lastly, advancements in AI are enhancing the potential of software, creating a positive outlook for the future of SaaS. However, companies that fail to innovate will be left behind.

• 🤑 Make it rain. Iron Pillar has closed a $129 million late-stage fund that will invest in global cloud companies from India. The fund will focus on Series B and C stage companies with an emphasis on SaaS and Cloud Infrastructure, with themes such as cyber security and governance, DevOps tools, future of work and education, and automation. (Read More)

• 🍕I guess software is actually eating the world. Startup Wise Guys is offering an acceleration program for early-stage digital B2B SaaS startups in East and West Africa. The program provides tailored guidance and support from mentors and experts, up to €65K in investment for up to 12% equity, and access to industry experts and a network of founders, mentors, and investors. (Read More)

• Push Security | $15m: simplifying SaaS security for modern IT and cybersecurity teams (link)

• Fetcherr | $12.5m: AI-powered pricing system, using proven reinforcement AI models to increase airline revenue by enabling High-Frequency Pricing (link)

• Spendflo | $11m Series A: SaaS buying and optimization platform (link)

• Apptile | $2.5m Seed: no-code platform to build mobile apps (link)

• Inven | $1.6m Seed: AI company that develops B2B SaaS solutions for M&A, private equity, and management consulting professionals (link)

• Narrato | $1m Pre-Seed: AI content creation and collaboration platform (link)

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