13 Things to Watch in AI: Product Evolution
Last week, we published Part 1 of “13 Things to Watch in AI,” which highlighted several notable technical advancements with broad-ranging potential impacts. Today, we are excited to continue our 4-part series by highlighting 3 things to watch in AI related to product evolution… more to come next week with part 3 of the series!
04 Intelligent SaaS & RAG
In the wake of ChatGPT’s release, Navitas was one of the first VC firms to highlight generative AI’s potential to unlock the true potential of vertical SaaS via a blog post entitled ‘Intelligent Software as a Service’ (aka iSaaS). In later months, other investors followed suit and recognized a similar potential, coining alternative phrases such as ‘Vertical AI.’ Navitas’ iSaaS investment thesis has been largely influenced by a track record of successful AI investments, such as EliseAI — the leading conversational AI platform for multifamily operations. When evaluating iSaaS businesses, Navitas looks for a unique combination of [a] proprietary data sets, [b] high-impact integrations, and [c] thoughtful user experience, all powered by best-in-class technical expertise.
Navitas actively applies the iSaaS thesis when making new investments, with Document Crunch as a recent example. Some iSaaS businesses rely on a technique called Retrieval-Augmented Generation (aka RAG) to apply GenAI technology to enterprise use cases. To get technical for a second, according to IBM, “RAG is an AI framework for improving the quality of LLM-generated responses by grounding the model on external sources of knowledge… [and] has two main benefits: It ensures that the model has access to the most current, reliable facts, and that users have access to the model’s sources, ensuring that its claims can be checked for accuracy and ultimately trusted.” As RAG (and similar) techniques improve, Navitas expects ‘Intelligent SaaS’ businesses to increasingly emerge as the primary drivers of value for AI deployment among businesses.
05 Copilots Galore
Beyond early-stage businesses, a similar iSaaS framework can be applied to big tech companies with a wealth of existing proprietary data sets and a deep understanding of core use workflows. Microsoft’s 2024 Super Bowl commercial for its new Copilot product may be the first in a long line of similar product announcements from leading technology platforms. Within the built world, Navitas sees similar Copilot opportunities stemming from legacy accounting systems, project management platforms, and loan origination software.
The big decision for corporate strategy teams is whether to build, buy, or partner. But maintaining the status quo is not an option. Due to the nimbleness and expertise required to effectively adapt this new AI technology, Navitas is a strong believer in the value of partnerships between large technology companies and early-stage startups. The legacy players bring reach and distribution, while the hungry start-ups bring innovation and speed. Document Crunch’s recently announced partnership with Procore is a great example of how these types of partnerships can quickly launch embedded Copilot products that deliver massive value to both company’s user bases by integrating into existing workflows.
06 The Leapfrog Effect
As Copilots and iSaaS solutions automate, augment, and enhance user workflows, the environment becomes ripe for “AI leapfrogging to transform ‘lagging’ industries.” According to NFX, “technological leapfrogging occurs when an industry or market skips a step along the technology transformation chain.” For example, some market segments of real estate and construction have not adopted vertical SaaS at scale; the juice has not been worth the squeeze compared to existing processes and systems (e.g., pen, paper, PDFs, etc.). In contrast, AI-based technology solutions are equipped to deliver more value with a lower burden on users than traditional SaaS via reduced training needs and less tedious workflows.
As an illustration of this concept, BIM has long been exalted as the next wave of innovation within construction design. However, for the past 25 years, the technology has struggled to gain mass adoption in the U.S. Instead, many professionals continue to work from 2D PDF construction drawings when managing the design process. Businesses like Firmus can leapfrog BIM technology by automating the review of 2D design drawings, delivering more value while decreasing the user burden. Rather than hiring and/or training a VDC (Virtual Design and Construction) team to conduct clash detection analysis on 3D models, general contractors can simply adopt Firmus and push ‘run.’ Similarly, TrustPoint represents a ‘leapfrog’ opportunity within the realm of construction finance through predictive risk modeling, finally migrating users beyond beloved, but archaic, spreadsheets.
To keep reading, check out Part 3: Macro Trends and Part 4: Market Shifts.
Over the past 15 years, Navitas has pioneered technological innovation in the built world. With unique expertise spanning venture, technology, and industry, Navitas has earned its market reputation as the partner of choice for start-up founders and leading executives. Artificial intelligence will reveal new opportunities and challenges within the built world. Consistent with the advent of any new technology, there will undoubtedly be winners and losers. As a trusted, engaged advisor, Navitas helps its partners navigate the shifting technology landscape to emerge as category winners, charting the course for the next wave of innovation.
