What we look for in AI companies

From 2022 to 2024 we focused on fintech. This year our focus moved to AI. We’re keeping the fintech companies we own. We’re just not looking for new ones.

Why AI, why now

The rails that made Indian fintech interesting are now mature. UPI handles more than 15 billion transactions a month. The obvious products have been built, and the big players are consolidating. The opportunity for a small buyer is smaller than it was.

AI is at the opposite point. Language models got good enough, and cheap enough, that a small software team can now do work that used to need a room full of people: reading invoices, checking claims, drafting replies to customer emails in Hindi or Gujarati. Many small companies are building exactly this. Most of them will never raise a big round. Some of them are very good businesses.

That’s the same pattern we saw in fintech in 2022. Useful companies, too small for venture capital, run by founders who’d like a good outcome.

What we look for

Nearly every software company now calls itself an AI company. Most have added a chat box to an existing product. We’re interested in a narrower group, and we ask four questions to find them.

Does the company own its customers? If the product is a thin layer over someone else’s model, the model provider can cut its margin or copy it. We want customers who would stay even if the model underneath changed.

Does it have data nobody else has? Years of a customer’s own documents, corrections and decisions make the product better each month. A new competitor can’t buy that.

Do the founders know their cost per customer? Running these models costs real money. We’ve met companies whose losses grow as fast as their revenue because nobody measured inference costs. We want founders who can tell us the number.

Would customers notice if it stopped working tomorrow? This is the simplest test, and we ask customers directly.

What doesn’t change

We still buy companies with paying customers. We still pay for what the business earns today. And after we buy, we still decide case by case whether to hold it, merge it or sell it.

If you’re building one of these companies and you’re thinking about what comes next, email us.

Happy Diwali.