1 minute read / Jun 15, 2023 /
Does an AI Premium Exist in the Fundraising Market?
If a company adds AI to their pitch or nabs a .ai domain, will they raise money at a higher valuation?
Nvidia’s sudden surge to $1t in market capitalization in the public market suggests it could be the case.
The data tells a different story. I plotted the 75th percentile valuation of all US software companies by stage compared to AI companies over the last twelve years.
| Stage | Valuation Correlation, R^2 |
|---|---|
| Seed | 0.99 |
| A | 0.99 |
| B | 0.83 |
| All Early | 0.98 |
Seed & A stage companies’ valuations are identical across these two sectors. Series B AI prices surged twice in the last 12 years, driven by a handful of outliers, but otherwise, they also move in lockstep. Across all of them, the correlation is 0.98.
The appeal of AI isn’t just the technology.
Rather, potential astronomical revenue growth fuels valuations by bringing software to new categories & by serving new unmet interest & voracious demand.
The businesses capturing that demand will command massive valuation premiums.
Even with an AI moniker adorning the pitch deck, a software company is a software company.