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AI automation could resurrect startup valuations

AI technologies will help make startups leaner and more cost-effective, according to a recent report from Battery Ventures. In turn, Battery anticipates that lower-burn startups will be worth more provided that their growth rates remain attractive.

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It’s an interesting thesis. When we consider AI from the startup perspective, we tend to think about what AI-powered software startups will themselves build. By flipping the question from what will AI software do for startups, Battery can see a future in which startups are worth a greater multiple of their revenues. That could make more nascent tech companies venture-backable, full-stop, and existing startups more likely to be able to grow into prior valuation marks.

At issue is the value of software revenue. The repricing of tech shares in the comedown from 2021’s market excess is a well-trod story at this point, as is the perspective that startups should burn less than they once did when money was cheaper and more plentiful.

But what good is a profitable startup if it fails to grow quickly? Little, it seems. So what venture investors would like more than anything — founders, too — is a world in which each dollar of revenue that their startups generate is worth more. That situation would help venture-math pencil out more neatly.

It’s far easier to invest in startups that burn cash when the revenue they are building is worth, say, $9 in value, instead of $6. Or $4.

The Battery argument goes as follows:

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