AI sales rep startups are on the rise. So why are VCs wary?

If you ask venture capitalists about investing in AI startups, they’ll tell you that businesses are experimenting deeply but are too slow. add AI solutions to their ongoing business operations.

But there are other things. And one of them seems to be a place called AI sales development representatives, or AI SDRs. This uses large-scale language models (LLMs) and voice technology to create marketing emails and make inbound calls to potential customers.

“In some markets, we’re seeing five to 10 companies all doing well in a short period of time,” Shardul Shah, a partner at Index Ventures, said of the AI ​​SDR boom.

While it’s not uncommon for multiple startups to focus on the same problem, it’s rare to see them all grow so quickly. But that’s apparently the way it goes for startups that only make products for the retail sector, investors say.

“When someone learns each of (these startups) individually, it’s like ‘wow, that’s enough for the market,'” Shah said. “When all 10 have the best products in the market, it’s hard to answer ‘How is this going?'”

The index has yet to invest in any of these companies, many of which are less than a year old. Although the whole team is on fire and customers are using them, it is still too early to know if their growth will continue in the long term or if they will be discarded like other AI pilot projects when the wow factor is gone, because they do not seem to be more effective than reaching people.

Small businesses prefer AI marketing LLMs

Arjun Pillai, founder of Doca startup that creates AI marketing experts, believes that the implementation of AI SDR is high because small and medium businesses can easily test these tools. Prior to Docket, Pillai was chief data officer at leading sales platform ZoomInfo.

“Over the past two years, cold email responses have dropped by 50%,” Pillai said. “Now that there is a group of companies that claim to be able to change this, everyone is willing to test their services.”

Notable AI SDR startups include Regie.ai, AiSDR, Artisan and 11x nobut ZoomInfo, the incumbent, also released a the pilot which competes with this and other retail startups.

Although these companies are growing rapidly in revenue, it is not clear whether they are helping businesses to sell more effectively.

According to Tomasz Tunguz, founder of Theory Ventures, the head of fundraising from a publicly traded company told him that although AI SDR helped generate more leads in nine months, it did not lead to actual sales.

“So it doesn’t mean that AI doesn’t work. It’s to say that most of us (still) don’t know how to use AI,” Tunguz he said on stage at the SaaStr conference in September.

Will the leaders let them down?

Chris Farmer, partner and CEO at marketing firm SignalFire, said he believes AI used in sales and marketing is a huge opportunity, but without access to diverse data, AI SDR startups are at risk of being overtaken by the likes of Salesforce, HubSpot and ZoomInfo. The main products of those companies are the ones that store their customers’ data. So if they provide bots that allow their customers to enter their data, such bots can be useful.

A venture capitalist who has looked at the market but never invested said his company looked at several AI SDR startups and they all had $1 million in ARR in less than a year. The start-up’s impressive growth was attractive, he said, but as a Farmer he was concerned that his solutions might be passed off as freebies by competitors.

Jasper, a writing startup that was valued at $1.5 billion, but fell into speed bumps and had to. lay off 30% of its workforce When ChatGPT was launched, it served as a warning to investors.

Investors are not surprised by the rapid adoption of AI SDRs; they just doubt that parenting will stick.

Updated: This article was originally published on August 22 and was updated on December 26 with comments from Tomasz Tunguz.