Ask any venture capitalist in detail about investing in AI startups and they will tell you that while companies are experimenting with a lot, they are very slow in adding AI solutions to ongoing business processes.
But there are some exceptions, one of which seems to be a field called AI Sales Development Representatives (AI SDRs), who use LLMs and voice technology to create personalized outreach emails and make automated calls to prospects.
“In some markets, you’re seeing five to 10 companies that are all successful in a very short period of time,” Shardul Shah, partner at Index Ventures, said of the AI SDR boom.
It's not uncommon for multiple startups to tackle the same problem, but it's rare for them all to grow quickly, but that seems to be the case for a startup that automates content creation for sales teams, according to investors.
” [these startups] “When all 10 companies have great product-market fit, it's hard to answer the question, 'How will that play out?'” Shah says.
Index has not yet invested in these companies, many of which are less than a year old, because it is too early to know whether they will continue to grow in the long term despite the popularity and customer adoption of the whole space, or whether, like many other AI pilot projects, they will be quickly abandoned once the wow factor wears off, despite claims that they are more effective than human intervention.
Small Businesses Prefer AI Sales LLM
Arjun Pillai, founder of Docket, a startup that trains AI sales engineers, believes adoption of AI SDRs will be high because it's easy for small and medium-sized businesses to try out these tools. Prior to Docket, Pillai was the chief data officer at ZoomInfo, a sales lead generation platform.
“Over the past two years, cold email response rates have dropped by at least 50%,” Pillai says, “and now there are a lot of companies out there claiming they can improve that rate, so everyone is keen to try their services.”
Some of the best-known AI SDR startups include Regie.ai, AiSDR, Artisan, and 11x.ai, but incumbent ZoomInfo has also released Copilot to compete with these and other virtual sales agent startups.
These companies are experiencing rapid revenue growth, but it's unclear whether this is actually helping companies improve their sales efficiency.
“The question is, how many of you have been paying for more than six months,” Pillai asked. To create truly personalized outreach messages, AI SDRs need to have very specific data about each prospect. But there's only so much we know about each prospect, and these companies all have access to the same public information, he said.
Chris Farmer, partner and CEO of venture firm Signalfire, sees a big opportunity in applying AI to sales and marketing, but said AI SDR startups that don't have access to differentiated data risk being overtaken by incumbents like Salesforce, HubSpot and ZoomInfo. Their main product is storing customer data. So if they give customers bots that can use their data, those bots could be more effective.
Will the incumbents crush them?
Another venture capitalist who has been watching this market but hasn’t yet invested said her firm has looked at several AI SDR startups and each one hit $1 million in ARR within a year. She said the startups’ impressive growth is appealing, but like Farmer, she worries that incumbents will eventually offer their solutions as free features.
Jasper, a copywriting startup last valued at $1.5 billion, ran into trouble after deploying ChatGPT and was forced to lay off 30% of its staff. The story serves as a cautionary tale for some investors.
Investors aren’t surprised by the rapid adoption of AI SDRs, they’re just skeptical that adoption will stick.