Editor’s Note
This article highlights a critical challenge in today’s tech investment landscape. As Caroline Dallas of GEM notes, the breakneck pace of AI development is creating significant uncertainty, making it harder to assess which software startups will thrive. This analysis underscores a pivotal moment for entrepreneurs and investors navigating this transformative but unpredictable field.
AI uncertainty is challenging firm formation in the software space, says Caroline Dallas, a partner at growth equity firm GEM.
She explained that traditional metrics for valuing software firms, such as recurring revenue and customer lifetime value, are being upended by the potential for AI to rapidly automate or obsolete entire software categories. This creates significant challenges for venture capital and growth equity investors who need to make long-term bets on company formation and scaling.
According to Dallas, this environment favors investors with deep technical expertise who can differentiate between genuine, durable AI-powered innovations and those that are merely incremental or vulnerable to disruption. It also increases the importance of backing founding teams with the agility to pivot their products as the AI landscape evolves.