AI sales rep startups have exploded. Why are VCs so wary?
When you ask venture capitalists to explain their investment in AI startups, you’ll hear that companies are testing AI solutions in their business processes but are slow to implement them. But there are exceptions. AI sales development reps, or AISDRs, are one such area. They use voice technology and LLMs to create personalized outreach emails, and to place automated calls with potential customers. While it is not unusual for several startups to focus on the same issue, it is rare that they all experience rapid growth. Investors say that startups automating content creation for sales teams are experiencing rapid growth. When all 10 have stunning product-market fit, it is hard to predict how that will play out. Small businesses are embracing AI sales LLMs
Arjun Pilai, the founder of Docket – a startup which builds AI sales engineers – is confident that AI SDRs will be adopted by many small and medium businesses because they can experiment easily with these tools. Before Docket, Pillai was the former chief data officer at sales lead generation platform ZoomInfo.
“Over the last two years, the reply rate on cold emails fell at least 50%,” Pillai said. “Now that there are a bunch of companies that claim they can improve this rate, everyone is willing to try their service.”
The best known AI SDR startups include Regie.ai, AiSDR, Artisan and 11x.ai, but ZoomInfo, an incumbent, also released a copilot that competes with these and other virtual sales agent startups.
While these companies are experiencing rapid revenue growth, it’s unclear if they’re actually helping businesses sell more effectively.
“The question is how many companies have been paying for more than six months?” Pillai asked. For an AI SDR to create a personalized outreach message, they need very specific information about each potential customer. He said that the information available about each customer is very limited, and that all these companies share the same public data. [these startups]Chris Farmers, CEO and partner at venture firm SignalFire said that he believed AI in sales and marketing was a huge opportunity. However, without differentiated data, AI SDR startups could be overtaken and absorbed by established companies like Salesforce, HubSpot, and ZoomInfo. These companies’ main products, however, are their customer’s data. If they were to offer bots that allowed their customers to tap into their data, then such bots would be more effective. Will incumbents crush them? She said that the startups’ impressive growth attracted her, but she also shared Farmer’s concern about their solutions being offered for free by established competitors. Some investors should be wary of Jasper, the copywriting startup which was valued at $1.5billion, but had to cut 30% of its workforce after ChatGPT came out. Investors aren’t surprised by the rapid uptake of AI SDRs, but they doubt that it will be sticky.
