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Editor鈥檚 note: This article is part of an ongoing series in which SA国际传媒 News interviews active investors in artificial intelligence. Read previous interviews with General Catalyst, Bessemer Venture Partners, Accel, Insight Partners, Index Ventures, Sequoia Capital, Section 32, M12 and Sapphire Ventures as well as highlights from these stories from 2023.听听

AI isn’t a feature. It’s not even a sector, if you ask .

“I look at AI as a fabric,” said Thakker, a general partner at storied venture firm .

Thakker recently met with us at his office on Silicon Valley鈥檚 Sand Hill Road to talk about the current investment landscape and the 40-year-old firm’s approach to investing in AI.

With AI, 鈥測ou’re automating human intelligence,鈥� which could be a higher order revolution than cloud or PCs, he said.

Battery has made investments in , and in technologies that assist companies with model management and performance. It is also an investor in , a more established data products startup that reached $1.5 billion in revenue run rate in July 2023 and acquired for $1.3 billion that same month.

Thakker joined Battery in 2015 to build out its infrastructure, data and cloud practice. An engineer by training, he started his career interning at semiconductor companies, then switched to software and was an early employee and co-founder of smaller companies in infrastructure and security that were later acquired.

Prior to Battery, he was the managing director for cloud and big data investments at , the active investment arm of semiconductor company .

鈥淭he technology revolutions we’ve seen so far 鈥� whether it’s cloud or mobile, or even personal computing or internet 鈥� took some inefficient mechanism and tried to provide some technology to make it easier,鈥� he said.

AI goes much further. 鈥淭he promise of AI is a stake in human judgment and trying to automate some of it so that humans can focus on higher-order tasks that are much more fruitful,鈥� he said.

The impact of AI is also being immediately felt in areas of the economy that have traditionally been further removed from deep tech innovations, he noted. 鈥淚ncreasingly, the boundaries between infrastructure and applications are converging in some sense, because AI is a highly technical space, but the impact is being felt by designers and marketing folks,鈥� Thakker said.

Increased productivity in tech and sales

A historically low interest-rate environment for many years gave the tech industry leeway to become inefficient and less disciplined, Thakker said, but that鈥檚 now changing quickly. There鈥檚 now pressure on companies to manage costs, he said.

鈥淛ust in front of our eyes, we’re seeing companies that are growing 20% to 30%, can now be cash flow break even almost immediately, or within 12 months, by applying generative AI to sales and marketing, R&D, recruiting and other areas of the business,鈥� Thakker said. 鈥淎nd so, we’re seeing this innovation fully impact productivity in the tech sector.鈥�

Thakker notes that it鈥檚 estimated more than $500 billion per year is spent on sales and marketing personnel in the software industry, using tactics developed 20 years ago.

But as more companies have seen their growth slow from, say, 50% to 20%, many are asking why they need so many salespeople.

鈥淵ou can automate half of that by using automated email generation, follow-ups and conversational parts, and engage customers and provide a better experience,鈥� he said. 鈥淭he ratio of all the overhead to quota-carrying sales reps has dropped dramatically.鈥�

A company generating $100 million in revenue, which was previously spending $50 million on sales and marketing, can now spend $30 million, he said.

Battery portfolio company , founded in 2015 to make sales executives more productive by training and providing conversation intelligence, has improved its technology with generative AI for customers to automate outreach to prospects and follow-up, he said.

Another large cost center, research and development, is materially impacted.

鈥淵ou can generate output from expensive software engineers making $300,000 to $400,000 a year using Copilot. You don’t need so many software engineers,鈥� Thakker said.

In other sectors such as healthcare, for instance, the impact might be a lot more profound.

Another of the firm鈥檚 portfolio companies, , is used in the antiquated health insurance business to process claims with greater speed and accuracy. According to the company, it has reviewed for four of the top 10 health insurance companies.

Cloud, semiconductor, AI competition

The so-called 鈥渕agnificent seven鈥� tech companies 鈥� , , , , , and 鈥斅爃ave seen their market values increase $4 trillion to $5 trillion in the space of 14 months, Thakker noted.

鈥淭he power struggle between Microsoft and Nvidia, Amazon and Nvidia is about to rise,鈥� he said. Nvidia is building its own cloud service, while Microsoft and Amazon could build their own chips.

In the previous tech generation, Apple built a chip for the iPhone to lessen its reliance on Intel. 鈥淚t wasn’t the best chip in the world,鈥� Thakker said. 鈥淏ut it was perfect for the iPhone, with low power consumption and graphics, but less computation.鈥�

The dynamics among these leading companies is about to change, even between Microsoft and Amazon, he said. 鈥淢icrosoft was the enterprise company. Amazon was the one with developers. And Microsoft, by locking up , has become closer to developers.鈥�

There’s an opportunity for these $100 billion to trillion-dollar companies to reshuffle the drawing board, Thakker believes.

鈥淢aybe Databricks or becomes the third cloud provider to compete with Amazon and Microsoft, while Google’s falling behind.鈥�

鈥淚 don’t expect more than 10 to 20 companies to win, but these 10 to 20 companies are going to be worth $500 billion to $1 trillion as opposed to $10 billion to $50 billion. The winners are going to be much larger than we have seen in previous generations.鈥�

This is beyond where startups are competing. However, the software spend is expected to increase as well.

AI leads to a rising wave of software

鈥淢y prediction is that the software by itself will expand from $600 billion to more than double or triple that,鈥� in the next five to seven years he said. 鈥淪o there’s plenty of upside for software companies by automating human labor and delivering more productivity per capita.鈥�

鈥淵ou could improve GDP by 5% by using technology, you create $5 trillion more value, but only spend $2 trillion more,鈥� Thakker said. 鈥淪o the software buy could expand dramatically.鈥�

Thakker predicts it’s a rising wave with many companies participating, and not necessarily at the expense of each other. 鈥淏ut ultimately it’s the drug discovery companies and the education companies and the sales and marketing companies that use AI at the application level that will generate that value,鈥� he said.

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