AI Coworkers: the Future of “Digital Employees”

Hey SaaS Sentinel reader. Welcome back. Down rounds are becoming widely accepted among VC firms, funding for open source projects are on the rise, and Nvidia’s CEO explains why we’ll soon be working alongside AI coworkers. Here’s what’s happening in SaaS this week.

• Venture capitalists are reframing down rounds as strategic opportunities

• Corporations, startups, and VCs are increasingly offering equity-free funding for open source projects

• Nvidia’s CEO predicts that AI agents will soon work alongside humans

VCs Are Embracing Down Rounds—And Startups Should, Too

In a booming economy, startups are accustomed to raising larger rounds at ever-increasing valuations. But in today’s market, many founders are facing the reality of a down round—new funding at a valuation lower than their previous one. While often viewed as a setback, some investors argue that down rounds might actually give startups a second chance at long-term success.

Nikhil Basu Trivedi, co-founder of Footwork, pointed out at TechCrunch Disrupt that down rounds aren’t always a kiss of death. Take Table22, a subscription platform for restaurants that pivoted from a college housing-focused model after the pandemic decimated its initial business. With Footwork’s help, Table22 reset its cap table, established a fresh stock option pool, and emerged with a new focus. Now, it’s raised an $11M Series A and continues to grow.

The Bright Side of Valuation Cuts

According to PitchBook data, down rounds have become more common, doubling to 15.7% of deals in the first half of 2024. Though these rounds come with a hit to ownership percentages for founders and employees, VCs like Elliott Robinson from Bessemer Venture Partners suggest they can be essential for weathering tough market conditions. "In a down market, taking a down round could actually be a win," Robinson shared.

Down rounds, however, aren’t easy. Managing morale amid a decrease in company valuation is challenging. Dayna Grayson, co-founder at Construct Capital, emphasized that while down rounds can feel demoralizing, there are ways to boost team motivation. Robinson shared how his firm incentivized a portfolio company’s employees with a bonus pool tied to revenue growth targets. "It reminded people that the core business was still solid," he said, making sure everyone knew what they were working towards.

What’s Next for AI Valuations?

With the recent spike in interest and high valuations in the AI space, the question lingers: will we start to see down rounds there, too? Trivedi, who has invested in several AI startups, believes that while some companies have the fundamentals to back up their valuations, many AI markets are becoming extremely competitive, with dozens of companies vying for dominance in similar areas.

In a volatile market, even the most hyped sectors aren’t immune to valuation recalibrations. The takeaway? With the right strategy and realistic growth goals, a down round could be a stepping stone rather than a stumbling block.

Read more.

Open source projects draw equity-free funding from corporates, startups, and even VCs

Open source projects are often the unsung heroes of the tech world, fueling many of the tools and platforms companies rely on daily. But while open source technology has been vital to the industry, funding for these projects has historically lagged. That’s starting to change as corporations, startups, and VCs begin to make significant financial commitments to keep the open source ecosystem alive and thriving.

Just last year, Bloomberg launched its FOSS (Free and Open Source Software) fund with up to $90,000 annually, while Indian fintech giant Zerodha pledged $1M a year for similar initiatives. The motivation is simple: companies like Zerodha attribute much of their growth to the foundational power of open source software (OSS). Zerodha CTO Kailash Nadh summed it up well: “A significant portion of our success and growth is owed to FOSS.” And the support isn’t limited to corporations; venture capital is getting involved, too.

VCs Get Involved. But With a Twist!

Some VCs are creating unique, equity-free funding channels specifically for open source. Sequoia Capital, for instance, launched an Open Source Fellowship in 2023, awarding grants to support OSS project maintainers. The fellowship's latest round supported Chatbot Arena and vLLM, two AI-focused projects developed by PhD students at Berkeley’s Sky Computing Lab. With backing from Sequoia and others, these projects can now focus on expanding without the pressure to turn commercial.

Sequoia’s involvement highlights a growing trend among VCs to contribute non-equity funding to projects that align with their portfolios, helping open source developers meet the infrastructure needs of high-growth startups. "This cross-pollination between fellows and our portfolio isn’t a strict condition but a nice bonus," Sequoia partner Lauren Reeder explained. Open source projects can benefit from the resources of VC-backed startups, while the portfolio companies gain access to essential open source tools—no strings attached.

An Open Source Pledge and the Push for Sustainability

Other players are taking open source funding a step further with systemic initiatives. Developer tooling unicorn Sentry recently launched an Open Source Pledge, committing $2,000 annually per developer to OSS projects and encouraging other companies to follow suit. With over $750,000 pledged for 2024, Sentry aims to foster sustainability in the open source space, where projects like Django, Python, and Apache have long been cornerstones.

For Sentry’s Chad Whitacre, the goal is clear: build a reliable support system for open source. “We vet companies when they join to ensure they’re complying with our guidelines,” Whitacre said, adding that the Pledge is designed to provide "no-strings-attached payments to open source maintainers."

Sustaining the Backbone of Tech

The increased focus on open source funding highlights a long-overlooked reality: essential OSS projects need financial support to keep up with demand, especially as the popularity of AI and data-driven applications soars. Berkeley professor Ion Stoica pointed out that today’s funding needs are “at least an order of magnitude higher” due to the complexity of AI infrastructure.

As companies rely more on open source software, programs like the Open Source Pledge and VC fellowships ensure that developers have the resources they need to innovate, grow, and maintain the backbone of modern technology.

Read more.

AI Coworkers: Nvidia’s CEO on the Future of “Digital Employees”

Imagine a future where your colleague is an AI. According to Nvidia’s CEO, Jensen Huang, this isn’t just a sci-fi vision—it’s the workplace reality of tomorrow. 

Huang recently shared his perspective on No Priors podcast, where he predicted that “AI employees” will soon become commonplace in roles across marketing, chip design, and supply chain.

Huang believes that AI agents—intelligent digital assistants—will integrate into teams similarly to human coworkers. These AI “employees” would work on tasks based on prompts, have back-and-forth conversations, and collaborate seamlessly in environments like Slack, effectively becoming valuable contributors to a company’s productivity.

The Rise of AI Agents in SaaS and Beyond

For software and SaaS companies, Huang sees enormous potential. He envisions a future where specialized AI agents are “rented” by companies for specific projects, much like hiring freelance contractors. These agents would bring expertise in areas like chip design and technical support, allowing companies to scale rapidly while minimizing costs. Nvidia is already exploring applications for its own AI agents in industries like chip design and digital media, and Huang imagines companies like Synopsys and Cadence deploying “rentable engineers” to accelerate their clients’ projects.

“Digital Twins” and the Changing Workplace

Huang isn’t the only tech CEO envisioning AI-driven workplaces. Zoom’s Eric Yuan recently introduced the idea of “digital twins,” or AI clones that attend meetings and handle emails so employees can focus on strategic tasks (or perhaps enjoy a shorter workweek). Google is also making strides here, with CEO Sundar Pichai revealing that 25% of Google’s code is now AI-generated, with engineers stepping in only to review and refine the AI’s work.

While Huang believes that AI can enhance productivity without leading to layoffs, not everyone in the tech community is as optimistic. Klarna’s CEO Sebastian Siemiatkowski faced backlash after suggesting that AI allowed his marketing team to shrink by half while achieving greater efficiency. It’s clear that while AI agents could revolutionize the workplace, they also bring complex questions about the future of human jobs.

What’s Next for AI in the Office?

As companies look to incorporate AI agents, we’re likely to see shifts in how work is managed and what human roles focus on. But with any major shift in the workplace, companies will need to carefully balance efficiency gains with maintaining job security and employee morale.

Read more.

Parting Thoughts

Well, that’s the tech news for this week. Hit reply and let us know—did you learn something from today’s newsletter?

Until next time!