1Mby1M AI Investor Forum: Angel Investor Raju Reddy (Part 4)

Sramana Mitra: The other really interesting area that I find very promising is that there are a lot of services companies out there and there’s so much AI technology right now to make services efficient. You almost can productize your services.

If you have a hundred clients that you’re providing services to, you should be able to use AI to dramatically get margin out of those businesses, which is another interesting development for bootstrapped entrepreneurship, in particular. As you know, we support bootstrapped entrepreneurship very, very seriously.

We have companies in the program right now that are in the area of advertising and social media marketing kind of stuff. There is a lot going on in those areas. Inserting AI into the models can really get efficiency.

When you were doing your services company, people considered services companies not really venture fundable until they reached very high levels of revenues, right? At Persistent Systems, Anand Deshpande raised venture capital, but it was much later in the game.

Raju Reddy: Yes, absolutely. That was twenty years ago.

Sramana Mitra: Today, because of this human in the loop and the ability to get so much more margin and so much more repeatability out of these ventures, some of these services companies are going to become venture fundable.

Raju Reddy: Yes, I think that’s definitely happening. Cognida just raised $15 million from Nexus.

Sramana Mitra: What does Cognida do? Could you discuss?

Raju Reddy: Cognida started as an AI first MLOps company about three years ago. This is all my X year Atlantic guys. Some of them went on to become senior executives at Hitachi. They came together a little bit like the Mindtree team that came out of Wipro. I think it was seven or eight of them. Cognida started about three years ago and is doing extremely well with IP led services. They have a product called Zuno, but they are fundamentally a services company in the enterprise space.

Sramana Mitra: There are two companies that are on my radar. Of course, Palantir is a fundamentally IP led services companies. That is a great example of an incredibly highly valued company.

There’s another company. I don’t know if you’re monitoring it. It’s called Machinify. It’s been around for a little while.

Raju Reddy: I see.

Sramana Mitra: It just merged with two other companies. It’s like a bit of a rollup – AI services and IP led services in the health insurance space.

Raju Reddy: I’ll look it up. I know Mu Sigma and Fractal. There are a few like that which have reached good scale.

Sramana Mitra: The three company combined rollup of Machinify is $500 million ARR.

Raju Reddy: I see, very nice. They probably have gross margins much higher than traditional service companies, right?

Sramana Mitra: Exactly.

Raju Reddy: You can say IP led and all of that, but unless it reflects in your gross margins, it’s not a proven model yet. But look at Palantir. They have very, very high gross margins.

Sramana Mitra: The main objection to services companies from the venture capital world was gross margin and repeatability. If you can crack those two nuts, then you have a venture fundable high-scale company within the services model as well.

This segment is part 4 in the series : 1Mby1M AI Investor Forum: Angel Investor Raju Reddy
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