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Measuring AI startups by the right yardstick

Ivy Nguyen Contributor Share on Twitter Ivy Nguyen is an associate at Zetta Venture Partners. More posts by this contributor Finding the Goldilocks zone for applied AI GDPR panic may spur data and AI innovation Building a B2B AI startup is hard enough between struggling to obtain training data and fighting with major tech companies to secure talent. Building a B2B AI startup held to the well-established software-as-a-service (SaaS) metrics is even harder. While many AI Businesses deliver value via software monetized by a recurring subscription like their SaaS counterparts, the similarities between the two types of businesses end there. AI startups are a different animal SaaS products built without data and AI offer generalized solutions to their customers. AI businesses more closely resemble a services business or consultancies because they provide solutions that become tailored to that customer’s specific needs. Like services providers or consultants, an AI product improves as it knows a customer better (as in, as it collects more data from customers with continued usage), and as it serves a broader customer base, from which it can collect best practices and make better predictions over a bigger data set. Services revenue has been the antithesis of venture-style growth because it yields lower margins and lacks repeatability and scalability; as your services business brings on more customers, you will need to scale headcount accordingly to support those accounts, which keeps margins low. Palantir, a big data analytics unicorn, is one company mired in services demands. Unlike services providers, AI businesses have the potential to deliver that targeted and greater ROI at scale. AI businesses are not scalable right out of the gate: AI models take time and require data to train. Moreover, not all AI businesses will scale. Here are the metrics we use to tell the difference early on. AI metrics Intervention ratio Hype will make enterprise customers trigger-happy to pilot AI solutions, but at the end of the day, enterprise buyers buy the best solution available to address their problems and don’t care whether that solution comes in the form of SaaS software, a consultancy or…



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Measuring AI startups by the right yardstick

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