A Reckoning Is Coming for Emerging Venture Funds

Presented by GOTO Market Institute

Morning SaaS Sentinel Readers. Emerging venture funds are fighting to keep their heads above water, a slew of new “IRL” (in real life) startups are carving out a new niche in the social apps space, and we’ve identified the 10 most popular AI vendors being used across businesses. Here’s what’s happening in SaaS this week.

• As the venture funding environment tightens, limited partners are more closely scrutinizing emerging fund managers.

• A recent study from spend management company, Ramp, has identified the 10 most popular AI vendors based on thousands of corporate card transactions.

• Emerging startups are organizing in-person events and activities to address the shortcomings of traditional online dating and social apps.

A Reckoning Is Coming for Emerging Venture Funds 

As venture funding gets tighter, limited partners are taking a closer look at emerging fund managers. According to new data from PitchBook and Cambridge Associates, smaller funds are fighting for a shrinking portion of capital as the number of players in the market has ballooned in recent years.

In this environment, up-and-coming VCs face greater pressure to prove themselves — Theresa Hajer of Cambridge Associates notes that past performance may no longer be enough, as younger funds that invested during the bull market haven't faced a downturn yet. Cambridge is carefully vetting new managers' strategies and networks.

That being said, some emerging funds are responding by getting creative. 

Marcos Fernandez of Fiat Ventures says GPs are cutting fund targets to close faster and put money to work. Others are specializing in industries like healthcare to offer unique expertise. Monica Saggioro of LatAm-focused MAYA Capital sees this kind of thematic focus becoming more important as her region's ecosystem matures.

Relationships with larger VCs are also providing opportunities to up-and-coming fund managers. Drew Glover says Fiat Ventures shares market insights with multistage firms, helping to cement partnerships with newer funds.

However, Fernandez predicts that not all emerging managers will survive the shakeout. “That’s an unfortunate thing because there are some incredible emerging managers out there,” he said. Perhaps some will be absorbed by other funds, or some of the best investors will be hired on by other firms, he predicts.

But when the thinning happens, those emerging funds with “staying power” will grow stronger, with “less competition for a smaller number of deals that are out there.”

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The 10 Most Popular AI Companies Businesses Are Paying For

A recent study from spend management company Ramp identified the 10 most popular AI vendors based on thousands of corporate card transactions. The study also found that non-tech businesses are using AI more, especially in healthcare and finance.

Don’t want to read all the way to the end? No worries — here are the top 10 AI vendors on Ramp.

1. OpenAI

2. Midjourney

3. Anthropic

4. Fireflies.ai

5. ElevenLabs

6. Perplexity AI

7. Instill AI

8. Instantly.ai

9. Beautiful.ai

10. Pinecone

OpenAI, best known for its ChatGPT conversational model, took the top spot. Rahul Sengottuvelu of Ramp notes its tools are proving particularly useful for functions like customer service, marketing, and engineering work. And according to Ramp's data, 82% of companies that paid for OpenAI in 2023 are still spending money on them a year later.

Coming in second was generative image startup Midjourney, likely chosen by creative and design teams looking to boost productivity and experiment with new ideas.

However, specialized "narrow AI" tools that can automate specific tasks are gaining serious ground. Meeting transcription and notes service Fireflies.ai ranked as the highest narrow AI vendor on the list. Its ability to simplify conference calls and distribute action items is resonating widely with clients.

Perhaps most notably, tech giants are taking notice of these emerging leaders — as we covered in last week’s newsletter, Amazon invested in Anthropic, while Microsoft's partnership with OpenAI in 2019 now looks prophetic.

As Sengottuvelu observes, these top vendors provide scalable solutions that evolve with businesses. They truly represent the cutting edge of innovation in artificial intelligence.

Read more.

New Startups Bringing People Together in the Real World

As social media increasingly dominates our interactions, a growing number of entrepreneurs are tackling the loneliness epidemic through innovative solutions focused on real-world connections.

Dubbed the "IRL economy," startups like 222, Saturday, The Breakfast, and Timeleft organize events and activities that get people interacting with one another face-to-face. Their goal is to address the shortcomings of traditional online dating and social apps by reducing pressure and prioritizing group activities over endless swiping.

And these companies aren’t just copy-cats of each other. They each have a different approach to getting their users together — the Breakfast uses a daily matching model to facilitate casual meetups while Saturday centers local gatherings around shared interests in a given area. Additionally, event platforms like Partiful and Luma are streamlining the process of finding and organizing all kinds of in-person gatherings.

By hosting everything from creative workshops to wine tastings and book clubs, collectives like RecCreate and Reading Rhythms are cultivating communities around shared values of intentional connection and playfulness. Meanwhile, Dinner With Friends throws dinner parties that foster meaningful conversations over a meal.

The only outstanding question is… how are these apps making money exactly? These IRL companies are betting on subscriptions, ticket sales, sponsorships, and partnerships with like-minded brands to generate revenue.

And investors are taking notice. Going "back to basics" of getting people together in person — strangers or friends — is "super refreshing" to Stellation Capital's founding partner Peter Boyce II, who has invested in apps like Lex, a queer community app that recently launched an events feature.

While it's still early for companies like these to claim success in this emerging space, the rise of the “IRL economy” poses huge benefits for both investors and users alike

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?