Opportunities in AI, Actionable growth strategies, Understanding VC rejections #0023

15/12/2023

ARTIFICIAL INTELLIGENCE

Jaya Gupta, and Ashu Garg, Partner and General Partner at Foundation Capital analyze and synthesize key trends in generative AI and future directions.“Year One of Generative AI: Six Key Trends”

• Rise of Generative AI as a Fundamental Platform Shift:

  • "Just over one year has passed since the release of ChatGPT. In the intervening twelve-odd months, it’s become abundantly clear that generative AI represents a fundamental platform shift. Leaders in the field now regard LLMs as the backbone of a new operating system capable of coordinating a variety of tools and resources to independently solve complex problems."

• Generative AI Infrastructure Development:

  • "The generative AI wave has seen a cohort of AI infrastructure providers gain tremendous traction. Together, they comprise a 'generative AI stack': a suite of tools around data pipelines, model deployment and inference, observability and monitoring, and security needed to put LLMs into production."

• Trend of Retrieval-Augmented Generation (RAG):

  • "Retrieval-augmented generation, or RAG, pairs LLMs with a retrieval mechanism that relays information from an external knowledge store during the generation process. [...] RAG systems can also link to sources, making their outputs more transparent and trustworthy. [...] An ongoing debate is whether recent generative-AI focused products [...] will win out over existing data storage solutions."

• Evolution and Challenges of AI Agents:

  • "An AI agent is a system that can perceive its environment and autonomously execute tasks through reasoning. [...] Task breakdown and synthesis are thus important areas of focus in agent development. [...] For all their promise, AI agents remain in a nascent stage of development."

• Employing an Ensemble of Open-Source and Proprietary LLMs:

  • "To mitigate risks and enhance product performance, the best practice is to employ an ensemble of open-source and proprietary LLMs, with a routing architecture that dynamically assigns tasks to the most suitable model. [...] Customized with domain-specific data and proprietary knowledge using platforms like Outerbounds, these smaller models often outperform their larger counterparts on specific tasks."

• Defensible Generative AI Applications in Startups:

  • "In 2023, endless ink was spilled over how startups can build defensible generative AI applications. [...] For founders, the key lies in creating products that are designed from the ground up around generative AI, rather than making incremental improvements that incumbents can copy-paste."

GROWTH

Growth: 1/2

Elena Verna, Partner at 20VC, shares effective growth strategies with actionable insights based on her experience in “My favorite go-to growth tactics”

• Do Profiling in Onboarding:

  • "Understanding who your customers are becomes crucial, allowing you to know who is doing well in your product, who is dropping off, and who is simply an adjacent user. [...] customers are happy to give you information about themselves during the onboarding time. So it's essential for effective and long-lasting growth strategies to include profiling questions during onboarding. [...] But… keep it reasonable.

    • No more than 6 questions.

    • On no more than 3 screens.

    • Give customers an explanation for why you are asking.

    • Immediately remove questions if you are not using the data."

• Implement Reverse Trials in Freemium:

  • "There's always this debate about whether to go with a Trial model or a Freemium model. Well, I'm throwing a curveball here: why not mix it up with a Reverse Trial! [...] You start customers off with a trial that gives them all the goodies of a paid version right when they sign up. But here's the kicker: after the trial, they can keep using your product for free, just with fewer features. [...] I have so many examples of reverse trials lifting freemium conversion rates anywhere from 10% to 40%. And increasing the engaged user base in trial-only products by 5x or more."

• Focus on Monetization Awareness:

  • "Monetization awareness is a measure of your customers’ understanding of what you are selling. A lot of products miss the absolute basics—everything available in a higher-tier paid plan should be visible in the lower tiers, either through a feature wall or usage messaging. [...] The best feature walls have consistent UI, upgrade icons, clear CTA’s, and strong copy. [...] To understand how prevalent this issue is, run a survey across your lower-tier customers, asking them what they think is included in higher-end plans.[...] Prioritize paid feature visibility both in-product UI and in-app/email communication streams."

• Improve Load Times:

  • "Just last month, one of the companies I work for did an analysis on conversion rates on checkout pages that load under 5 seconds, vs. those that take longer than 5 seconds. The results were shocking: a whopping 40% increase in confirmed orders when the page loads under 5 seconds. [...] Every second counts when it comes to the load times of different parts of your product. It's not just about user experience; it's about your bottom line. Faster load times can lead to happier users and, in turn, more revenue. It's a win-win!"

Growth: 2/2

Collin Stewart, CEO at Predictable Revenue, welcomed Kathy Doucette, CFO / COO at Proposify to provide actionable strategies for integrating finance and strategy to enhance go-to-market (GTM) efficiency in "Measuring Your GTM Efficiency with Kathy Doucette"

• Achieving a Balance in Business Strategy:

  • On ambition and realism: "A successful business strategy often lies in balancing ambition with realism. This balance is achieved by setting clear checkpoints for accountability and rigorously evaluating the effectiveness of various campaigns and channels."

• Long-term Perspective in Business Growth:

  • On the sustainability of strategies: "A long-term perspective is vital in business growth, especially when venturing into new territories like untapped market segments. It’s not just about the immediate impact of a strategy but its sustainable contribution to the company’s growth over time."

• Channel Testing and Scaling:

  • On pragmatic growth strategies: "It begins with a testing phase to determine what resonates best with the market. 'It’s about understanding what works and then scaling those results.'"

• Evaluating New Marketing Channels:

  • On lead quality and conversion efficiency: "Starting with a clear understanding of market size and customer fit is essential. Then comes the deep dive into metrics like cost per lead and customer acquisition cost. 'Efficiency and quality in lead conversion are paramount.'"

• Measuring ROI of Complex Channels:

  • On assessing intricate marketing channels: "With the proper set of assumptions and meticulous attention to outcomes, businesses can effectively gauge the effectiveness of these channels. It’s about diligently monitoring results and adapting strategies based on the data gathered."

• Building a Cohesive Go-to-Market Model:

  • "Creating an effective go-to-market model starts with asking the right questions: Who is your target market? Do you have the right product-market fit? What about your pricing and messaging? These foundational elements are crucial in shaping a model that tracks expenditure, lead generation, and conversion rates and resonates with your target audience."

FUNDRAISING

Double Down, a $30m fund investing in web3, demystify common investor feedback in “Number 1 Lie That Early Stage Investors Tell Founders (And What They Really Mean)“

• Investor: "You haven’t de-risked a key success factor that we are worried will kill your business."

  • Perspective: "Every company’s success depends on a few key things that have to become true for the company to be successful – and sometimes those success gating factors are well-known to be virtually unsolvable, rendering investors skeptical about your ability to do so. [...] Show enough proof points that you can indeed de-risk key aspects (unlike the graveyard that is previous generations of startups tackling the same problem) and investment interest will follow."

• Investor: "We would rather invest later (assuming certain conditions are met)."

  • Perspective: "For multi-stage investors, the investment/pass decision is not just 'why should we say yes?' but also 'why should we say yes right now?' [...] If key factors they are worried about are de-risked, or they believe a team is the absolutely best team to ever tackle a given problem/product, they will invest as early as possible to maximize their eventual return."

• "We don’t like it but we don’t want to say so (for any number of reasons)."

  • "Saying no is no fun, so the softer not-a-no-just-too-early-no is much easier (and yes, more cowardly) for many investors. [...] Many founders also feel like they can persuade an investor that their reasoning is wrong, wasting time for both sides – the reality is that you cannot argue your way into a 'yes' decision."

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