Venture capitalists will tell you that while businesses experiment wildly, they are slow to integrate AI into their existing business processes. There are exceptions. AI SDRs, or AI sales development representatives (or AI SDRs), appears to be one of the exceptions. These use large-language models (LLMs), voice technology, and automated calls to create personalized outreach emails. Shardul Shah, a partner with Index Ventures, commented on the AI SDR boom. “In some markets we’re seeing 5-10 companies all succeed in a relatively short period of time,” he said.
It’s not uncommon for several startups to focus on the same problem. However, it is rare to see them all grow rapidly. Investors say that this is the case with startups that automate content generation for sales teams.
When one looks at [these startups] separately, it’s “wow, this is stunning product market fit,” Shah said. “When all 10 have stunning product fit, it is hard to predict how that will play out.”
Index, which has not invested in any of these startups, many of whom are less than one year old, has yet to make an investment. It’s too early to tell if the growth of this category will continue in the long run, or if it will be discarded, like many other AI pilots, once the wow-factor fades.
Small businesses love AI Sales LLMs
Arjun Pilai, founder and CEO of Docket (a startup that builds AI Sales Engineers), is convinced that AI SDRs are widely adopted because small and mid-sized businesses have the ability to experiment with these tools. Pillai worked as the chief data officer for ZoomInfo, a platform that generates sales leads.
Pillai stated that the response rate to cold emails has dropped by at least 50% in the last two years. “Now that a number of companies claim to be able to improve this rate, people are willing try their services.”
The most well-known AI SDR startups are Regie.ai. AiSDR. Artisan. and 11x.ai. But ZoomInfo, a long-time incumbent, has also released a copilot which competes with them and other virtual sales agents startups. Although these companies are experiencing rapid growth in revenue, it is unclear if they are helping businesses sell more efficiently.
Tomasz Tuguz, founder and CEO of Theory Ventures revealed that a chief revenue office from a publicly-traded company told him that an AI SDR generated a large volume of leads in a nine month period, but did not result in actual sales.
It’s not that AI will fail. It’s just that many of us [still] don’t know how to use AI,” said Tunguz onstage at the SaaStr conference.
Will incumbents crush them?
Chris Farmer is the partner and CEO of venture firm SignalFire. He believes that AI applied in sales and marketing represents a huge opportunity. However, without access to differentiated information, AI SDR startups run the risk of being overtaken and absorbed by incumbents such as Salesforce, HubSpot and ZoomInfo. These companies’ main products are the data of their customers. If they offered bots which allowed their customers to tap into their data, then such bots would be more effective.
A venture capitalist, who has not yet invested in this market, said that her firm had looked at several AI SDR startup companies and they all had $1,000,000 in ARR in less than a month. She said that the startups’ impressive growth attracted her, but, like Farmer, was worried their solutions would eventually be offered for free by established competitors.
Jasper is a copywriting company that was valued at $1.5 billion, but hit speed bumps, and had to layoff 30% of its employees after ChatGPT was launched. This serves as a cautionary story for some investors.
Investors do not seem surprised by the rapid adoption rate of AI SDRs, but they doubt that it will be a long-term trend.
This story was originally published in August and updated on December 26 with comments by Tomasz Tuguz.
Marina Temkin, a reporter for TechCrunch covering venture capital and startups, is a member of the team. She wrote about VC before joining TechCrunch for PitchBook, Venture Capital Journal and other publications. Marina began her career as a financial analyst, earning the CFA charterholder designation.
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