AI sales rep startups are booming. So why are venture capitalists so wary?
When you scout venture capitalists about investing in AI startups, they’ll tell you that companies are experimenting a lot but are very slow at getting there. Adding AI solutions to their ongoing business operations.
But there are some exceptions. One of them appears to be an area known as artificial intelligence sales development representatives, or AI SDRs. These use large language models (LLMs) and voice technology to craft personalized outreach emails and place automated calls to potential customers.
“In some markets, we are seeing five to 10 companies achieve success in a very short period of time,” Shardul Shah, partner at Index Ventures, said of the AI SDR boom.
While it’s certainly not uncommon for multiple startups to target the same problem, it’s rare to see all of them experience rapid growth. But that appears to be the case for startups that automate content creation for sales teams, investors say.
“When one studies any of [these startups] “Individually, it’s like, ‘Wow, this is an amazing product-market fit,'” Shah said. “When all 10 of them have amazing product-market fit, it’s hard to answer the question: ‘How will it work?’
The index has not yet invested in any of these companies, many of which are less than a year old. Although the entire category is on fire and being used by customers, it is still too early to tell whether their growth will continue in the long term or whether they will be phased out like many other AI experimental projects once the wow factor wears off, because they don’t prove It is more effective than human communication.
Small businesses love LLM degrees in AI sales
Arjun Pillai, Founder Agendaa startup that builds AI sales engineers, is convinced that adoption of AI and SDRs is high because SMBs can easily experiment with these tools. Prior to Docket, Pillai was the chief data officer at leading sales generation platform ZoomInfo.
“Over the past two years, the response rate to cold emails has dropped by at least 50%,” Pillay said. “Now that there are a bunch of companies claiming they can improve that rate, everyone is willing to try their service.”
The most popular AI SDR startups include Regie.ai, AiSDR, Artisan, 11x.ai,But ZoomInfo, the current company, also released a Co-pilot Which compete with these startups and other virtual sales agents.
While these companies are seeing rapid revenue growth, it’s unclear whether they’re actually helping companies sell more effectively.
According to Thomas Tungoz, founder of Theory Ventures, a chief revenue officer at a publicly traded company revealed to him that while AI SDRs helped generate a high volume of leads over a nine-month period, they did not lead to actual sales.
“So that doesn’t mean that AI won’t work. It means that a lot of us will [still] “I don’t know how to use artificial intelligence.” He said on stage at the SaaStr conference In September.
Will those in power crush them?
Chris Farmer, partner and CEO of investment firm SignalFire, said he believes applying AI to sales and marketing represents a huge opportunity, but without access to differentiated data, AI and SDR-based startups risk being overtaken by established companies like Salesforce, HubSpot and ZoomInfo. The main products of these companies are their customer data keepers. Therefore, if they offer bots that allow their customers to leverage their own data, these bots may be more effective.
Another venture capitalist who has looked at this market but has not yet invested said her firm looked at several AI and SDR startups, and that they all had $1 million in ARR in less than a year. She said the startups’ impressive growth was attractive, but like Farmer, she was concerned that their solutions could eventually be offered as a free feature by established competitors.
Jasper, a copywriting startup that was last valued at $1.5 billion, ran into speed bumps and had to… Laying off 30% of its employees After ChatGPT was introduced, it served as a cautionary tale for some investors.
Investors are not surprised by the rapid adoption of AI SDRs; They just suspect that adoption is sticky.
Updated: This story was originally published on August 22 and was updated on December 26 with comments from Tomasz Tungoz.
