Some of my startup investments have been stuck for a few years at less than one million dollars in annual recurring revenue.
Artificial intelligence is helping them break out three times a year, year over year, but venture capitalists do not care.
The Problem
The current environment favors new startups going from a standing start of zero dollars to one million dollars plus annual recurring revenue in a short time, like less than six months.
Startups with a few years of slow history look tainted.
Like they are from the old software-as-a-service era, whereas new must mean they are artificial intelligence native.
The Narrative
“But we have embraced artificial intelligence and are now growing fast.”
This story will not resonate with investors.
Yes, it is a mistake investors are making, but it is the reality right now.
Hidden Value
Existing startups with new momentum have solid foundations.
They have a proven team that has worked together longer and understands the industry so much better than a new company.
In my opinion, these are amazing companies.
The older the company, the less risky it is.
The best risk-adjusted returns will be found in companies pivoting to artificial intelligence.
My Advice
If you are a company in this situation, I think one or two more years of growth will wipe the slate clean if you want to raise funding.
Your growth will look even more exponential over time if you choose to do your Series A.
In the meantime, I am advising my portfolio companies in this situation to focus on profitability.
Conclusion
Venture capitalists may be overlooking the best opportunities by favoring brand-new artificial intelligence startups over established companies successfully pivoting to artificial intelligence.
Patient founders who focus on profitability and sustained growth will ultimately be rewarded with better valuations and less risk.
Want to read more content like this? Follow me on LinkedIn and X