General Catalyst has further landed among the headlines by having put a jaw-dropping $74 million on Titan MSP. Connecting more communities through AI This investment will create powerful new artificial intelligence tools tailored for managed service providers (MSPs). This effort is part of a larger movement in the tech sector. Venture capitalists are clearly supporting companies that are buying existing companies and innovating them with new AI-powered capabilities.
Elad Gil, a well-known venture capitalist, has been doing this kind of venture for the last three years. He argues that operating them gives you more flexibility to transform faster than just selling software as a third party vendor. Gil’s approach is the manifestation of a broader understanding of the challenges at play in applying AI technology responsibly and effectively across all sectors.
In-line with this investment trend, Mayfield has set aside $100 million for investments solely in AI teammates. Gruve, a Maryland-based IT consulting startup, proves just what’s possible when you leverage AI to drive operational efficiencies. In less than half a year, it tripled its revenue to $15 million while boasting an outstanding 80% gross margin.
General Catalyst’s Bhargava noted that a lot of the work – up to 80% – is AI manageable. That transition can push gross margins to a staggering 80% – 90%. He elaborates on the potential for AI to revolutionize industries by automating up to 50% of tasks within companies and even up to 70% in core call center functions. Such potential efficiencies are openings to fortune within the rich $1 trillion global software market. The even broader global services market − $16 trillion a year and growing − presents even richer opportunities for expansion.
In a successful pilot program, Titan MSP proved that it could automate 38% of day-to-day tasks commonly performed by an MSP. This achievement highlights the powerful promise of generative AI technologies to radically improve operations and accelerate progress. These companies are facing critical inefficiencies, as employees waste almost two hours on every occurrence of workslop. Combined, these factors result in an estimated $9 million in lost productivity per year, increasing the need for AI solutions.
Eudia is quickly becoming an extraordinary force in the legal/tech landscape. They are changing the game for the entire industry by providing fixed-fee legal services driven by AI to Fortune 100 clients including Chevron, Southwest Airlines and Stripe. This model is a great example of how AI can be folded into existing business models to improve the breadth of services provided and the overall efficiency of operations.
As exciting as the potential AI heralds are, Bhargava says we shouldn’t underestimate the complexity introduced when trying to use these new technologies. To his point of AI technologies excelling in unique areas. So, organizations will require a new breed of highly skilled “applied AI engineers” who understand the intricacies of working with such models. These engineers, hailing from companies like Rippling and Ramp, play a crucial role in integrating AI effectively into existing workflows.
“I think it kind of shows the opportunity, which is, it’s not easy to apply AI technology to these businesses.” – Marc Bhargava
General Catalyst is on the prowl for acquisitions to reinforce its portfolio. First, they purchased RFA, a tech services company, then acquired Johnson Hanna, an alternative legal service provider. One company is taking all of these companies and changing them with AI—General Catalyst. Their plan to increase gross margins of 10% to 40% demonstrates a visible line of sight to improvement in a highly competitive market.
Mayfield’s Navin Chaddha is a supporter of this approach. He asserts that with smart AI adoption, blended margins can increase to 60% to 70%, leading to net income of 20% to 30%. The fund and the financial incentives for investing in AI transformation are clear.
“If 80% of the work will be done by AI, it can have an 80% to 90% gross margin.” – Navin Chaddha
However, despite the huge potential rewards, the path forward is not without challenges and is paved with peril. Bhargava argues against the idea that AI is overhyped, blaming failed implementations on a lack of understanding, not deficiencies in the technology. Yet, he’s hopeful that AI technology will continue to develop and advance. To meet these challenges, entirely new industries will be created, provided companies have the ability and opportunity to incubate innovative solutions.
“As long as AI technology continues to improve, and we see this massive investment and improvement in the models, I think there’ll just be more and more industries for us to help incubate companies.” – Marc Bhargava
