Beating the AI hype in VC

Fundraising Demystified: Issue #82

by Thunder

What's Below in Issue #82:

- Can you get backed without an AI play in 2024?

- Cyber Security's resilience pre CrowdStrike Crash

- Podcast #50 w/ Dan Reich- from bouncy balls to 2 Salesforce exits

- Free startup resources

Data Corner

CrowdStrike Crash and Cyber Security Funding

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Last week's big news was the CrowdStrike outage that impacted several industries including airlines, banks, and hospitals following the release of a faulty update.?

Generally, though, the cyber security sector has proven to be one of the most resilient when it comes to VC funding. According to Crunchbase, Venture investors spent $2.7 billion in 154 deals backing cybersecurity startups in Q1, marking the industry’s best funding quarter in three quarters.

For CrowdStrike though, the recent outage is costly, as share prices dropped over 13% due to the incident, and the costs are projected to surpass $1B.

Fundraising as an AI-free brand

For the past couple of years, we've all heard the jokes about how the easiest way to get VC-backing was to feature AI in your brand name, pitch deck or product offering. Investors were basically throwing money at AI-powered companies last year, with OpenAI and Anthropic closing billion-dollar rounds. Just 10 funding rounds in the artificial intelligence space bagged over $16B!

So, in a world where we all rely on AI and it's the next big thing since crypto, how can you differentiate yourself from founders with a product that is not AI-dependent? It's going to sound mad coming from me as Thunder is built on AI, but I have spoken to some founders for their take and thought I'd share my learnings.?

Last week, I talked about how you may be too poor to get backed by VCs, today, I talk about whether AI could be another blocker for you in your fundraising journey. According to Quartz, nearly half of all VC funding in the US this year has gone to AI startups. So how do you carve out your slice of the remaining pie? Stick with me.

The first time I saw this meme, I chuckled. Then came the rise of companies built on GPT-4 wrappers getting funded, in the hype of AI and LLMs. But if you're solution isn't AI powered, how can you differentiate?

Leverage industry expertise

AI is a fairly new concept for investors, but if you are in a different sector, you can use your history and expertise to attract funding. Sectors like health and FinTech tackle well-known problems so if you are in these spaces, you can rely on these pain points (and probably your background) to show the value of your solution.

Even after decades of testing, AI is still struggling- have you seen some of the responses Google's Bard (now Gemini) comes up with? Meanwhile, if you are a founder in the logistics space, for example, and worked at Amazon for years before launching your logistics company, you have an edge and have worked out kinks and understand your industry.

Have a compelling brand story

The beauty of a non-AI-powered startup is that you can weave your story based on how YOU created a solution for a challenge you identified. An AI founder's story, however, is more likely to be based on the potential their tech can offer.?

You have more proof-of-concept on your side. Lean on this in your pitch and comms.

Do you have a super unique value proposition?

Sure, AI startups can highlight their technology's unique capabilities. It's great having predictive analytics, automation, or machine learning models that solve complex problems. What can you counter with??

If you aren't Sam Altman, you can show off your niche markets, innovative solutions to specific problems, and unique product features. Ideally, investors, especially those with particular investment theses, can appreciate that you've built a product that you've validated on more than the accuracy of your algorithms.?

?While investors are currently bullish on AI solutions, it's no reason for you to force an AI play to pander to them. There still are lots of problems that AI can't solve yet. Find your niche and fly to the moon!

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Hot take: There have already been two AI funding winters and a third may be on the horizon. When that happens, VCs will need a place to invest their millions- why not your non-AI startup?

How Dan Reich Cracked the Code to Multiple Successful Exits: Now in Episode 50

I was privileged to have Dan Reich join me in this episode - a seasoned entrepreneur and investor with an impressive track record of successful exits. From his humble beginnings selling bouncy balls in high school, he's gone on to found and exit companies in diverse sectors including technology and beauty. Check out this episode to learn more about his fascinating journey to a $725M Salesforce exit that included finding out one of his business partners was on an FBI watchlist!

Check It Out

Free Fundraising Resources

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- Access working capital fast - Explore options for free

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- Free fundraising coaching session - Schedule 15 minutes with us

?- Playbook for Negotiating Term Sheets - Download it Here

?- Playbook for Setting Up and Sharing Your Data Room - Download it Here

- Playbook for Sending Investing Updates - Download it Here