Revealing How AI Marked Down VC Valuations

While AI is making product development faster, it is also reducing the value of software companies.

This is because core parts of code can be generated instantly. While there is debate on the quality, one engineer can take the place of two or three.

Thus, software creation is becoming a commodity. By association, companies that rely on software to provide their product or service should be valued less.

We saw this firsthand in early 2024 when we released a proprietary AI. Despite building from scratch with members of a former IBM Quantum team, everyone just assumed it was using ChatGPT. The wow moment for customers and investors never happened. Instead, it became a defense of our system against all of the existing ones.

Differentiation

In the past, owning sophisticated code was very valuable. This should not be the case today except in extreme circumstances. For the SaaS company, this shifts the value focus 100% onto market demand and growth.

IP Considerations

In a world where non-experts can build expert systems, the value of intellectual property drops significantly. Besides using AI to create code, startups use APIs to provide functionality, reducing the likelihood of valuable IP. This means that most new software will be low in value.

Conclusion

When everyone comes to market with a commodity, the only means of differentiation is customer experience and price. While customer experience has proven to be a successful competitive advantage, price is not. Therefore, companies building value must focus on the customer experience.