The transformation of artificial intelligence services may be more difficult than VCS

The owners of the investment capital themselves persuaded themselves that they had found the next large investment edge: the use of artificial intelligence to cancel the software similar to software from intensive services companies traditionally. The strategy includes obtaining mature professional services companies, implementing artificial intelligence to automate tasks, then using improved cash flow to operate more companies.

The leadership of the fees is General Catalyst (GC), which allocated $ 1.5 billion from the latest donations for what you call a “creation” strategy that focuses on the custody of the original software companies in the specified sectors, then the use of these companies as cars to acquire to buy well-known companies-in the same sectors. GC has placed bets across seven industries, from legal services to IT department, with plans to expand up to 20 sectors completely.

He said the world levels of $ 16 trillion annually worldwide. Mark BahrgavaWhich leads the efforts related to GC, in a A recent interview with techcrunch. “By comparison, the program is no more than $ 1 trillion worldwide,” he pointed out, adding that the attractiveness of investment in software has always been its highest margins. “With the expansion of software, there is a very marginal cost and there is a large amount of marginal revenue.” He said that if you can automate the service work as well, the treatment of 30 % to 50 % of those affected companies, and even automating up to 70 % of those basic tasks in the case of communication centers – mathematics begins to look irresistible.

Then the improved cash flow provides ammunition to acquire additional companies at higher prices than traditional buyers can afford, which creates what supporters see a profitable budget wheel.

The game plan seems to be working. Take Titan MSPOne of the company General Catalyst. The investment company provided 74 million dollars on a two -segment to help the company develop artificial intelligence tools for managed services providers, then acquired RFA, a well -known company for IT services. Through experimental programs, says Bhargava, Titan has proven that it can be automated 38 % of MSP model tasks. The company is now planning to use its improved margins to gain additional MSPS in a classic strategy.

Likewise, the company embraced YudyaWhich focuses on internal legal departments instead of law firms. Eudia has registered from Fortune 100 customers, including Chevron, southwest of airlines, and the tape, providing fixed legal services supported by artificial intelligence instead of bills in the traditional hour. The company recently acquired Johnson Hanna, an alternative legal service provider, to expand its access.

Bahrgava explained that General Kachels is looking to double – at least – the profit margin before benefits, taxes, destruction and consumption in those companies that they get.

The power company is not alone in this thinking. Mayfield has specifically conservatively for $ 100 million for “Amnesty International” investments and led the series A for Gruve, a consultant information technology consultant that obtained a security consulting company worth $ 5 million and grew to $ 15 million in revenue within six months with a total margin of 80 %, according to its founders.

“If Amnesty International is 80 % of the work, it can have a total margin of 80 % to 90 %,” Tell Techcrunch this summer. “You can have margins from 60 % to 70 % and produce 20 % to 30 % net income.”

The individual investor follows Elad Gil a similar strategy for a period of three years, as it supports companies that acquire mature business and turn them into artificial intelligence. Jill said in a file Interview with Techcrunch this spring. “And because you take the total margin of a company from, for example, 10 % to 40 %, this is the huge elevator.”

But early warning marks indicate that the transformation of the entire services may be More complicated What VCS expects. A recent study conducted by researchers in the social media laboratories in Stanford and better laboratories by 150 full-time employees across the industries that 40 % of these employees must bear more work because of what researchers call “Workslo”-the work created by artificial intelligence that seems polished but lack materials, and create more works (and headache).

The trend negatively affects organizations. Participated in the poll says they spend nearly two hours in dealing with each of Worksloop, including to decipher its symbols first, then decided if it will be sent again, and only only to fix it themselves.

Based on the estimates of these participants of the time spent, along with their self -reported salaries, the authors of the scanning estimate carry an invisible tax of $ 186 per month per person. “For an organization of 10,000 workers, given the spread of the appreciated Worksloop. This results in 9 million dollars per year in lost productivity“They write in a new article to review Harvard Business.

Simply applying artificial intelligence does not guarantee improvement of results, in short.

Bhargava goes beyond the idea that artificial intelligence is prohibited, instead that all these implementation failures actually emphasize the approach of General Catalyst. “I think this is somewhat the opportunity, and it is not easy to apply artificial intelligence technology to these companies,” he said. “If all these people and all of these people are only brought in a consulting company, slapped some artificial intelligence, get a contract with Openai, and turn their business, then it is clear that our thesis (will be) will be slightly less powerful. But the truth is that it is really difficult to convert a company with artificial intelligence.”

He referred to the technical development required in artificial intelligence as the most important piece in the mystery. “There is a lot of different technology. It is good in different things,” he said. “You really need artificial intelligence engineers from places such as ripples, slope, yogma and scale, who worked with different models, understand their accurate differences, and understand what is good for what, they understand how to wrap it in the programs.” He said that this complexity is exactly the reason that General Kadist’s strategy of pairing artificial intelligence specialists with industry experts to build companies from A to Z is logical.

However, there is no denial that WorkLop threatens to undermine the basic economy of the strategy. The biggest question is the severity of the problem and whether this image changes over time or not.

Currently, if companies reduce employees as the thesis of the efficiency of artificial intelligence indicates, they must have fewer people available to arrest errors created from the infection intelligence. If they maintain the current recruitment levels to deal with the additional work created by the problematic AI output, then the huge margin gains on which VCS depends is never achieved.

It is easy to say that any of the scenario may slow the scaling plans that are essential to the VCS strategy and may undermine the numbers that make these deals attractive to them. But let’s face it. It will take more than one study or two To slow down most of the Silicon Valley investors.

In fact, since they usually get the current cash flow companies, their own “creation strategy” companies are already profitable.

“As long as the technique of artificial intelligence continues to improve, and we see this investment and the enormous improvement in models, I think there will be more and more industries for us to help the corporate custody.”