AI automation could resurrect startup valuations

Key Takeaways:

– AI technologies can help startups become leaner and more cost-effective.
– Lower-burn startups will be worth more if their growth rates remain attractive.
– Startups can be worth a greater multiple of their revenues with the help of AI.
– This could make more tech companies venture-backable and allow existing startups to grow into prior valuation marks.
– The value of software revenue is important, especially in the current market climate.
– Investors and founders want each dollar of revenue generated by startups to be worth more.
– Investing in startups that burn cash is easier when their revenue is worth more.
– The Battery argument emphasizes the potential benefits of AI for startups.

TechCrunch:

AI technologies will help make startups leaner and more cost effective, according to a recent report from Battery Ventures. In turn, Battery anticipates that lower-burn startups will be worth more provided that their growth rates remain attractive.


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It’s an interesting thesis. When we consider AI from the startup perspective, we tend to think about what AI-powered software startups will themselves build. By flipping the question from what will AI software do for startups, Battery can see a future in which startups are worth a greater multiple of their revenues. That could make more nascent tech companies venture-backable, full-stop, and existing startups more likely to be able to grow into prior valuation marks.

At issue is the value of software revenue. The repricing of tech shares in the comedown from 2021’s market excess is a well-trod story at this point, as is the perspective that startups should burn less than they once did when money was cheaper and more plentiful.

But what good is a profitable startup if it fails to grow quickly? Little, it seems. So what venture investors would like more than anything — founders, too — is a world in which each dollar of revenue that their startups generate is worth more. That situation would help venture-math pencil out more neatly.

It’s far easier to invest in startups that burn cash when the revenue they are building is worth, say, $9 in value, instead of $6. Or $4.

The Battery argument goes as follows:

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AI Eclipse TLDR:

According to a recent report from Battery Ventures, AI technologies have the potential to make startups leaner and more cost-effective. The report suggests that lower-burn startups could be worth more if their growth rates remain attractive. This perspective challenges the traditional thinking of what AI-powered software startups can build and instead envisions a future where startups are valued at a greater multiple of their revenues. This could make it easier for nascent tech companies to attract venture capital and for existing startups to reach their previous valuation marks. The value of software revenue is a key factor in this argument, as the repricing of tech shares in the current market environment has highlighted the importance of startups burning less cash. However, it is crucial for startups to also demonstrate rapid growth in order to be successful. Venture investors and founders alike would benefit from a world where each dollar of revenue generated by startups is worth more, as it would make investment decisions easier and more favorable. The Battery Ventures report presents an optimistic outlook for the potential impact of AI technologies on startups.