• SaaS Sunday
  • Posts
  • The AI Investment Boom: Will it Lead to a New Gold Rush?

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

Plus: The Dark Side of SaaS & Iron Pillar’s $129M Fund

Good morning MRR lovers,

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

I hope you are ready for Season 2 😂

Have feedback? Let me know at [email protected]

First time reading? Sign up here.

🍿 Quick Snack

  • 👑 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 Full Meal

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.

“As companies mature, it becomes easier and easier to get a junior salesperson doing something cash flow accretive. Sales scripts get better and product quality gets higher, which enable the new rep to hit the ground running. By contrast, it gets harder over time to productively onboard junior developers. This is because the product gets more complex and the ideas for improvement get more niche, both of which make it harder for a new developer to have an impact.”

  • 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.

🍟 Extra Fries

  • 🤑 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)

💸 Funding Rounds

  • 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)

Looking to start your own newsletter? Beehiiv is the Salesforce of creator platforms.

What did you think of today's newsletter?

Login or Subscribe to participate in polls.