November by D’Ornano + Co.: Building Robustness in 2024, Open-source AI models vs AI regulation, and looking back at 2023 in charts.
This is our monthly newsletter dedicated to Tech x Investments.
Dear readers,
Another year is ending, and what a year this has been in Tech!
It was a year full of optimism – with the platform shift brought by genAI – but also of pessimism – as private market investments continued to decline sharply with a string of collapses and layoffs.
It has also been a year of polarization, which will also characterize the year to come. On the one hand, there will be those companies that seize the tremendous opportunity of genAI – from start-ups deploying new ideas across the entire genAI tech stack to incumbents transforming their operations – and that thrive in an a risky environment (see below). Then there will be those that leave a game they are no longer able to compete in. In this latter category, will be scale-up “titans” that raised massive rounds in 2021 (+/- 6 months) and that no one thought would collapse and yet do as their cash runway ends.
What will position a company at either end of the spectrum? Who will be a winner or a loser in the 2024 investment game?
2024 will provide considerable risks: economic risks (Recession? Stagflation?), geopolitical risks (Ukraine/Russia and Israel/Hamas), political issues with the upcoming US elections, and so many others that investors and entrepreneurs building resilient businesses will need to factor in their decisions. The good news is that there is record dry powder to deploy: BlackRock estimates that the private capital industry’s “dry powder” has now touched the $4tn mark, with Private Equity leading the game. I expect Tech and tech-enabled assets will likely take an even larger share of 2024 capital deployment.
If 2023 was the year of Efficiency, 2024 will be the year of Robustness. Robustness will be about building a business with solid fundamentals, allowing to outpace competitor growth amidst a challenging environment (in which risk-level is high), one with high-quality revenue streams and underlying solid growth and margins. These businesses will show resilience at the balance sheet level and an ability to mitigate risks and incorporate the positive effects brought by the genAI platform shift.
Let’s look at the implications across the Private Markets.
At the early-stage VC level, displaying strong business fundamentals will primarily be about the quality and edge of the technology and product-market fit evidence if revenue exists. The recent fundraising led by French genAI champion Mistral.ai, said to have built the most solid technology in the field of open-source models, is evidence of this, given that the company has yet to start generating revenue.
Still with VC, but now at a later stage, the ability to pursue high growth (at scale for IPO candidates) while reducing associated costs will prove the solidity of the business case. Effectively incorporating genAI in products is a challenge many start-ups will face, which will be critical for business continuity in many domains. 2024 also will mark a turning point for many late-stage companies that will face increased competition of incumbents who, for many, have bridged their tech obsolescence. Evidencing strong moats beyond technological ones will be a necessary condition for funding.
Last, for the “old economy” whose business models do not face the need to become efficient (or at least for whom the efficiency paradigm is a minor one) as they are already cash-flow positive, it will be a challenge for them to be able to take part in this paradigm shift. Indeed, if genAI allows for efficiency gains that will increase margin disparities, I also think it will bring profound changes to the nature of products and services sold as the technology allows for real-time optimization and insights. We are just at the beginning here but are already seeing massive transformations across Healthcare, Business Services, Education, etc. Hence, beyond financial Robustness, not becoming antiquated and effectively taking advantage of genAI will be the conditions for business model robustness.
As we approach the new year, I am filled with excitement. The 2023 reset has been fiercely challenging, but as we enter 2024, we have more cards in hand to make the right investment decisions. I wish you a fantastic holiday season and look forward to reconnecting next year!
Tech Predictions for 2024: what to expect in Tech in the coming year?
As 2024 approaches, the tech industry is still feeling the bruises of two tumultuous years that saw investment dramatically pull back. However, we detect cautious optimism that actors of the Private and Public markets have turned a corner. But for any upswing to really gather momentum, there are still a few obstacles to confront in the coming months.
So, let’s take the pulse of where we see the industry today, and what challenges it must face in the new year.
Open-source AI models Versus AI Regulation
With the excitement and fears brought by the genAI wave comes a push to regulate. In October, the Biden Administration in the U.S. issued an executive order that requires AI developers to share safety test results with the U.S. government. Europe took this even further last week by agreeing to the EU AI Act, a sweeping piece of legislation. We explore the implications of this regulatory push and see how open-source models can constitute an interesting alternative here.
From Unicorns to Zombies: Tech Start-Ups Run Out of Time and Money | The New York Times
In a well-documented article, Erin Griffith explores how many start-ups are facing potential failure after tentative to cut costs over the year, and points out to how these companies are dealing with the lack of cash from actual death to zombie mode survival.
8 charts that explain 2023 | The Information
The Information comes back on the past year with eight visual charts that help explain tech * investment trends, and points to the increased polarization of companies operating in similar spaces from EVs to the Creator Economy.
As with any massive technological wave, it is critical to understand the broader implications of genAI, and in this case the ones on the job market. Citing research from the European Central Bank, the article interestingly points out how AI poses a greater threat on wages than to the actual number of jobs.
One Click LCA
D’Ornano + Co. has supported InfraVia Capital Partners and PSG Equity’s on their 40M€ late-stage investment in One Click LCA (Finland), a leader in European carbon management SaaS platforms.
Upway
D'Ornano + Co. has advised Korelya and Sequoia’s on their 28M€ late-stage investment in Upway (France), a leading seller of e-bikes.
Obat
D’Ornano + Co. has supported Crédit Mutuel Innovation in leading a €10M Series A investment in Obat (France), a fintech providing a SaaS solution for SMEs in the construction sector.
You like what you've read? Tell and share with your friends!
Newsletter powered by D’Ornano + Co.
