AI automation could resurrect startup valuations

AI technologies helps make startups stronger and more cost-effective, according to a a recent report from Battery Ventures. Instead, Battery expects startups with lower burn rates to become more valuable if their growth rates remain attractive.

The Exchange explores startups, markets and money.

Read it every morning on TechCrunch+ or get The Exchange newsletter every Saturday.

This is an interesting thesis. When we consider AI from a startup perspective, we tend to think about what AI-powered software startups will do. By turning down the question of what to do with AI software with startups, the battery sees a future where startups get more value for their profits. That makes more new tech companies venture-backable, full-stop, and existing startups more likely to be able to grow to earlier valuations.

The issue is the revenue value of the software. The transformation of tech sectors to come from the surplus market in 2021 is a well-known story at this point, as is the view that startups should burn less than back when money was cheaper and more plentiful.

But what good is a profitable startup if it fails to grow quickly? It seems to be small. So what venture capitalists want more than anything — founders, too — is a world where every dollar of revenue their startups generate is worth more. That situation helps venture-math pencil more smoothly.

It’s easier to invest in cash-burning startups when the revenue they’re building is worth, say, $9, instead of $6. Or $4.

The battery argument is as follows:

Leave a comment