1Mby1M Virtual Accelerator AI Investor Forum: With Jukka Alanen, Rebellion Ventures (Part 2)

Sramana Mitra:  So if you are doing a pre-seed round in AI, what do you ask to see in the company? Do you see an MVP? Do you see just a concept? What stage are you investing in?

Jukka Alanen: This has actually changed a lot over the past five years. Five years ago, AI companies, even at the seed stage, didn’t necessarily have a commercially ready product or paying customers. These days, even pre-seed startups may have a product, may already be starting to engage with customers. Usually at the seed stage, you are much farther along in terms of already building that product and taking it to market and starting to drive adoption.

When we think about what’s important with entrepreneurs, number one is the customer problem. Have you identified and understood deeply what is the compelling customer problem that AI and automation are uniquely positioned to solve? That insight into customer personas and understanding the inefficiencies in the status quo that you can transform and revolutionize is really important.

Then number two is being able to create a value proposition that is radically better – 10-100 X better than the status quo in terms of how you can drive productivity, how you can improve human work, how you can accelerate velocity or whatever it might be based on the customer needs. This is in terms of applying AI and automation to transform those operations and creating an irresistible value proposition for our customers.

Number three is the team itself. Typically, we see great magic happening when you combine both deep domain expertise in terms of understanding why and how the status quo is broken and how it could be transformed into something much better. Then you bring the AI and automation know-how to build a solution that delivers that.

So those three are the most foundational elements that are important for us. Depending on whether it’s a pre-seed or a seed, you may be in different stages of customer engagement, customer validation, and customer traction. But the most foundational pieces are – understanding the customer problem, deep insights into why and how it’s broken; number two – the irresistible radical value that you bring to transform operations; and number three – the team that has deep insights as well as the know-how to drive that kind of transformation.

Sramana Mitra: So Jukka, I want to double click down on an issue. Are you seeing a lot of bootstrapping before they come to seek a pre-seed round? Because if they have to get to a product and customers before a first check, there has to be a significant amount of bootstrapping.

I guess that’s my first question. And then the related question is, how are they getting to that product? Are they building on top of an existing platform? A lot of the stack is already from somebody else and they’re adding the vertical logic on top. How are they managing to bootstrap to that extent where they already have a product and customers?

Jukka Alanen: Great questions. Entrepreneurship has fundamentally changed. In the old school traditional model, you’d write an upfront long business plan, then you try to get funding based on that long business plan. Once you have the funding, you’d start bringing people on board, and then start going out to customers and start engaging. That kind of model doesn’t make sense in today’s world and it’s upside down.

So, typically, these entrepreneurs have done a lot of work before it makes sense to get funding. Typically, they’d already bring insights from their expertise in terms of where the opportunities and problems might be. They typically have done some work to understand and validate the customer problems.

Five years ago when you were building AI companies, you’d have to build most of the stack yourself. That took a lot of time. It was very expensive, but nowadays you’ve got a number of open-source components and commercial APIs that you can leverage, and then you can be really more focused on what is your core or unique value or differentiation. You don’t need to build the entire stack yourself. That would not make sense anymore in today’s world.

So that helps entrepreneurs get started in a more lean, cost-efficient way and faster. But typically, there’s some work they’ve done before. So, there’re three key elements in terms of customer insights and some validation even before having a commercially available product, using ways to be very focused in terms of what exactly do you need to start working on and building to gain more customer validation, and start assembling the core team before raising funding. Then obviously with funding, you can start accelerating and building that out in a bigger way.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator AI Investor Forum: With Jukka Alanen, Rebellion Ventures
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