A familiar tale is unfolding in the venture capital industry as rapid investment in AI startups is outpacing value generation – characterized by companies with sky-high valuations and accelerated cash burn rates. While a change in administration can certainly facilitate deal-making, it's not a silver bullet for sustainable value generation. In the dot-com era, it was Amazon’s focus on the fundamentals (customer experience, operational efficiency and diverse product lines) which allowed it to emerge over Books-A-Million.com and the many other failed companies who put an “internet spin” on the traditional bookstore model. The AI sector is now witnessing a wave of startups repackaging applications on top of existing models, like ChatGPT. And while financial sponsors may find them innovative, say, through their focus on a particular sector (e.g., healthcare, finance, manufacturing, etc.) – a bonus should be given to those having proven indicators of profitability, such as experienced leadership teams and strong customer relationships.

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A Fundamental Approach to AI Profitability
AI Investments Are Booming, but Venture-Firm Profits Are at a Historic Low. Investors hope the Trump administration will make tech acquisition deals easier

Baker Botts Partners Margaret Welsh and Michael Silliman and Associate Katherine Corry give insights on the intersection of artificial...