Why Are VCs Cautious of AI Sales Rep Startups?

Artificial intelligence has been a major topic of conversation in recent years, and the proliferation of this technology is overwhelming just about all markets.

From sport and healthcare to finance and tourism, AI can and is being used to improve business offerings, efficacy and efficiency across the board, and there’s no sign of this new-age tech slowing down.

Sales is another industry that is starting to see a serious increase in AI-related technology, including management software as well as full-on AI-powered sales reps.

And, these companies are doing well. In fact, the market has seen a fair few new companies emerge in the world of AI sales rep startups recently, and interestingly, most of them seem to be doing very well.

The Recent Success of AI Sales Rep Startups

Indeed, in a very new, relatively small market, the businesses that have emerged are producing some really impressive results.

Also known as AI sales development representatives (AiSDR), there seem to have been a plethora of these companies emerging simultaneously and not only that, but they’re actually all managing to achieve a fair amount of success.

Well, they have so far.

They’re still around, for one, which can be quite a feat in itself considering the number of competing businesses that emerged in the market at the same time. Indeed, Shardul Shah, a partner at Index Ventures, has noted this simultaneous boom as something to be noticed due to not only their survival in the market but the fact that they’ve actually achieved rapid growth.

However, despite this very clear and noticeable success among AI sales rep startups, another thing that’s been identified by outsiders is the apparent trepidation coming from investors.

Indeed, the industry hasn’t seen much investment on a large scale – or, at least, as much as you may expect – and the general feeling in the industry and the broader startup and AI landscape seems to be that venture capitalists are nervous.

What’s Causing Caution Around AI Sales Rep Startups? 

Despite the fact that many of these companies, including the likes of ZoomInfo and HubSpot, have clearly brought in a lot of money in their first years of business and have achieved very impressive success overall so far, venture capitalists don’t seem to be convinced just yet.

This is in spite of the fact that the services of AiSDR companies have been adopted quite broadly, with smaller businesses being especially receptive to the potential of this new technology.

But, if these AiSDR businesses are making big money, showing rapid growth and being used (successfully) by other businesses, why are they not considered good investments for VC?

Of course, we can’t speak for everyone, but the overwhelming sentiment seems to be that there is concern over how long this success will last.

Concerns Over the Longevity of AiSDR Startups 

The potential problem that’s been identified by investment experts, including SignalFire’s Chris Farmer and Docket’s Arjun Pillai, is whether or not these businesses that have experienced such incredibly rapid growth well be able to sustain their success.

According to Pillai, while the adoption of AiSDR services has been impressive, it’s mostly been confined to small and medium-sized businesses. While there’s nothing wrong that in itself, it does highlight the fact that these AI sales rep services are simply better suited to smaller companies. Also, it’s less risky and more plausible for smaller businesses to test them out.

So, where does that leave large organisations? Well, it’s tough to say whether or not they’ll ever get on board, but as of yet, they don’t seem to be buying into the concept on a large scale, and that raises concerns for venture capitalists.

Indeed, a business whose services are not supported or suitable for large businesses is one that is likely to have a ceiling in terms of potential, and that’s a reason for concern for investors.

Furthermore, Pillai has also raised concerns over there being no actual proof of the success of these AiSDR services, despite their adoption among many companies. The biggest question he posed was how many of these companies have actually been paying for AI sales rep services for more than six months?

Much of this data isn’t yet available so this scepticism really is conjecture at this point, but it does seem reasonable to assume that there may be reason to be skeptical.

Where Will AiSDR Startups Go From Here?

Nobody can say what’s definitely going to happen, but the primary concern of many onlookers is that the market will continue to experience rapid growth, with large corporations eventually joining the conversation. And, in fact, this has already started happening, with the likes of SalesForce offering an advanced AiSDR service.

The worry is that when this happens, the smaller startups will not only struggle to compete naturally, but eventually, the large corporations will be able to start offering AISDR services for free as part of other packages and offerings. Indeed, the expectation is that if this does happen, it’ll be incredibly difficult for small businesses that only offer paid AI sales rep services to survive.

But, this is all conjecture, who knows what’s going to happen?

So far, AI sales rep startups have been wildly successful, and although many investment experts are concerned about how well they’ll do in the future, there’s not much to do other than wait and see.

That is, wait and see what the numbers look like down the line and wait and see whether or not their upward trajectory continues.