🖥️🤖 Issue #116: The Transition From Software to AI Services
Claremont entrepreneur Liam Dorpalen-Barry shares his playbook on how to successfully build AI service businesses, and it was another week of impressive funding rounds for Claremont startups
Good morning & happy Thursday. According to PitchBook, investors have poured ~$330B into thousands of new AI and machine learning startups over the past three years. 😱
This week, Claremont entrepreneur Liam Dorpalen-Barry shares his insights on the changes he sees in the industry today and his playbook on how to build a successful AI services business. It’s a Claremont world out there. 👇
~ Josh, Miles, Pat
📢 👥 Community Voices: Software is Dead, Long Live AI Services!
Claremont entrepreneur and software engineer Liam Dorpalen-Barry (PO) is the founder and previous CEO of ProcureNow — a modern procurement solution that helps local governments and vendors make better decisions, move faster, and simplify the procurement process. Its customizable workflow walks users through the process of creating and publishing solicitation documents in a guided step-by-step manner built on industry best practices compiled by top procurement teams around the country. The company was backed by top firms such as 500 Global and CivStart. In 2021, ProcureNow was acquired by OpenGov, a leader in modern cloud ERP software, to expand its market-leading suites.
After a decade in the software industry, Liam shares his insights on the current transition from software to AI services based on what he sees in the market. He also discusses the key ingredients to building a successful AI services business.
Over the next 10 years, I predict that we see a new cohort of AIS companies become large, sustainable businesses in industries such as accounting, insurance, real estate, healthcare, freight, waste management, law, education, IT, travel, and even parts of government. New AIS companies will follow a pattern of Disruptive Innovation, as studied by Clayton Christensen.1 They will be full-stack startups that deliver much cheaper versions of the services that businesses and consumers buy today, typically targeting underserved segments of these markets. AIS companies will have margins similar to software businesses, and they will achieve unprecedented scale in previously fragmented markets.
The succession of a new regime is often fraught with risk, but also full of opportunity for human progress. The Coronation of Napoleon is an iconic historical example of transition from one paradigm to another.
Below, I discuss the history of how we got here, and some of my thoughts on how to successfully ride this wave…..
How to Win in AIS
To build a successful business in AIS, there are two ingredients that are unique from software startups: (1) picking the right services industry and (2) operational excellence.
Before diving in, it is worth noting that this is not an exhaustive list of factors to consider when building a new business — it is just a shortened list of variables that I think are unique and worth considering for AIS companies. If you’re looking for a more wholistic framework for picking business ideas, check out my writing on that topic here…..
Executing Well in AIS:
Building a full-stack startup is more complex than pure software, as it typically includes building out all the major functions of an incumbent in a given industry, as opposed to just focusing on the software. These businesses require leaders with more operational sophistication and the patience for people management. Here are a few key aspects of executing well on an AIS company that may be unique:
Stay focused on gross margins: In traditional software companies, you can have a relatively lean team (and high gross margins of 60-80%). But traditional services firms require human labor as the core offering can have gross margins as low as 20-50%. The hope of AIS is that gross margins could be 60-70% by using AI to improve efficiency.
Invest in service quality and people management. This is the “services” piece in AIS. Managing large teams of service professionals is a different skill that most tech companies do not need to think about. Some full-stack startups have failed because they neglected service quality, and that will also be true with this next wave.
Inorganic growth opportunities: The universe of M&A targets for software companies is much more limited. Services industries typically contain tens or hundreds of thousands of firms. While organic growth will many times still be the best path to scale, the opportunities for M&A will be much more abundant, and we will likely see successful exits this way.
Entrepreneurs who pick the right markets and execute the AIS playbook well will have a high likelihood of success over the next 10 years.
I’m excited about building, advising, and investing in these types of startups, so please feel free to reach out if you are interested in discussing these ideas further.
After over three years and a 100+ issues of bringing you updates on the Claremont startup scene and highlighting the amazing work that Claremont entrepreneurs do, our newsletter is getting a fresh new name. In the next few weeks, “Between The Lines” will transition to “StoryHouse Review.”
StoryHouse Review will continue to share stories about Claremont Colleges' entrepreneurship and technology community. We decided on this new name to help bring more clarity and synergy to our StoryHouse Ventures brand. As a reminder, at StoryHouse Ventures, we are building the resources and connectivity for the whole Claremont startup ecosystem and supporting the next generation of Claremont’s most daring founders.
Excited for the next 100+ issues of StoryHouse Review.
🚨Claremonster Call-Out: Michael Beebe
Claremont alumnus Michael Beebe (HMC ‘01) is the co-founder and previous COO of Matterport – a 3D media platform developer used to establish 3D and virtual reality models. The company’s groundbreaking spatial computing platform turns buildings into data, improving every part of the building lifecycle, from planning, construction, and operations to documentation, appraisal, and marketing. Today, Mike is the CEO of robotics and advanced computing startup Volley Automation.
After completing his engineering degree at HMC, Mike spent time as a Research and Development Engineer at SRI International, working on 3D terrains for training the military. He then led a team as the Engineering Manager at Impres Medical, developing devices to improve women’s health. Before Matterport, Mike also co-founded the nanotechnology startup Integrated Plasmonics. He then joined his co-founders Matthew Bell and David Gausebeck to start Matterport, which IPO’d in 2021.
It was recently announced that Matterport would be acquired by the CoStar Group for a cash and stock deal valued at approximately $1.6B. The Transaction is expected to increase the development and deployment of Matterport’s advanced AI and digital twin technology. Congratulations to Michael and the entire Matterport team!
Sagar Batchu (HMC ‘15) is the CEO and co-founder of Speakeasy – an API DevEx platform that instantly creates SDKs that make API integration easy for your users. Their platform takes the heavy lifting out of providing a great API experience by integrating directly into your GitOps and propagating changes. Speakeasy is leveraging platform engineering, code gen, and LLMs to provide a platform that unburdens teams who are creating, maintaining, and constantly evolving their APIs. They’re also backed by Google Ventures, Quiet Capital, and StoryHouse Ventures, and they’re hiring for several open roles on their team:
Agile Six, co-founded by Claremont grad and COO Brian Derfer (PO ‘90), is a full-spectrum digital services company whose mission is transforming government and private sector relationships. They work with government agencies to create customized digital solutions that help build the civic tech marketplace –partnering with clients like the Centers for Medicare, Medicaid Services, and the Department of Veterans Affairs. Agile Six’s coaching services and workshops also influenced the development of a new voluntary primary care model that will be launched this year. They’re hiring more software engineers to join their team:
Check out the other ~5,000 open jobs at 400+ Claremont-affiliated companies here on our Storyboard. Plus, create a profile and enter your preferences to get alerted to new job postings relevant to you, be they the 1,000+ remote jobs, 100+ internships, or 40+ part-time positions available. We’ve published research that shows that Claremont-founded companies that disproportionately hire Claremont talent outperform — so pay attention, Claremonsters!
If any of these roles catch your eye 👀 , apply and mention Between the Lines. Or, if you are an employer looking to hire tip-top Claremont talent, fill out this form to have your jobs featured.
🗣️ Conversations on the Interwebz:
This week’s top read 🔥
Claremont operator David Obrand (CMC ‘91) was recently featured by the Atlanta Business Chronicle for his outstanding leadership of Salesloft, a sales engagement platform company. David took over as CEO in February 2023. Since then, Salesloft’s revenue has grown 132%, and its workforce has nearly doubled. Salesloft is also No. 7 in Biz Journal’s list of Atlanta's 100 Fastest-Growing Private Companies.
This week’s must-watch 📺
Claremont alum Emil Kakkis (PO ‘82) was interviewed by Biotech TV about his company’s efforts toward treating Angelman syndrome and the current state of rare disease drug development. Emil is the founder and CEO of Ultragenyx, a biotech company focused on developing drugs for rare and ultrarare genetic disorders. The company IPO’d in 2014. Ultragenyx has raised $780M+ in total funding with a current market cap of $3.59B. Emil was also recently recognized by SF Business Times as one of the most outstanding CEOs in the Bay Area.
This week’s Claremont financing 💸
Claremont grad Analeah Heidt (CMC ‘00) is the Chief Scientific Officer and co-founder of Enlaza Therapeutics – the first covalent biologic platform company creating a groundbreaking new class of protein therapeutics to deliver safer patient treatments. The company recently announced a $100M Series A round led by the Life Sciences Group of J.P. Morgan Private Capital. The financing will be used to develop Enlaza’s proprietary covalent protein technologies further.
Sparrow Pharmaceuticals, a clinical-stage biopharmaceutical company developing treatments for disorders of corticosteroid excess, recently raised $10M to further its clinical trials for a promising drug candidate. Most of the funding round came from its current investors, led by OrbiMed, U.S. Venture Partners, and RiverVest Venture Partners. Claremont grad David Katz (PO ‘84)is Sparrow’s founder and current CSO. In total, the company has raised $60M+ in funding.
MatchaBar, co-founded by Claremont grad Max Fortgang (PI), is a family-owned business committed to going above and beyond to bring the world a quality matcha product. Max and MatchaBar are Forbes 30 under 30 awardees backed by celebrities such as Billie Eilish and football star Von Miller. The company recently raised ~$1M, bringing its total funding to ~$14M.
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📈 Making Better Investment Decisions…..The London Inc. Magazine recently featured Claremont entrepreneur Amos Nadler (CGU), telling the story of how he built and launched his investment software product, SmartTrade. Amos is the founder, CEO, and Chief Scientist of Prof of Wall Street – the first quantitative behavioral finance platform that detects investment biases in trading data and informs decisions with client-specific insights via their SmartTrade process.
💸 Investing With Impact…..Claremont grad and sustainability expert Eleanor Willi (PO ‘11) is the co-founder and CEO of Rezonanz. Launched just last month, Rezonanz provides responsible investors with quantitative analytics across individual and collaborative initiatives. This includes a ‘Voting for Sustainability’ ranking system designed to measure proxy voting records’ alignment with sustainability benchmarks and asset owners’ preferences. ESG featured them in a recent article, sharing more details on the company’s development and plans to launch an Engagement Tracker for investors.
