In the AI boom, incumbents are better positioned to compete with startups than in previous cycles, VCs say at Goldman Sachs Communacopia

I know, it’s a silly riddle, because the answer is aggressively obvious: AI. But there’s a wrinkle here. This particular chandeliered ballroom in San Francisco’s Palace Hotel on Tuesday was hosting the 2024 Goldman Sachs Communacopia and Technology Conference. 

Though VCs are in the business of backing upstarts, at a Goldman conference it’s inevitable that incumbents will loom large. (After all, what’s more incumbent-y than Goldman and its equity research team’s coverage of publicly traded companies?) And one message I got loud and clear was that incumbents are especially well-positioned in this technological shift—perhaps more so than they have been in previous transitions. 

“In cloud wave one, there was a real disadvantage for the incumbents,” said Byron Deeter, partner at Bessemer Venture Partners. “Here you’ve got real data distribution advantages that the smart players have, and that’s a real challenge to us funding new companies that are coming into the market now. They’ve got all the other traditional advantages of speed, focus, and reasonably low-cost capital given high valuations—but some of those incumbents will harness those advantages, too.”

Sure, the standard bearer for generative AI may be OpenAI, a startup that VCs can’t get enough of. But it’s no accident that the AI boom has been marked by alliances between startups and the big incumbents, whether it’s Microsoft and OpenAI, or Amazon, Google, and Anthropic.

The dynamic between incumbents and startups was a recurring theme during the 40-minute panel.

“I still think that there’s a lot of opportunities, in white space between the big boulders for startups, and that’s what’s making life for all of them really exciting right now,” said Glenn Solomon, Notable Capital managing partner. “One area that comes to mind for me is the productivity that can be driven from code generation as an example. It’s the first really good area where you’re seeing knowledge work change…There’s a lot of data to refine and it’s obviously a big part of the economy. And, of course, Microsoft has a big role to play there.”

Knowledge work came up repeatedly. 

“For me, to rethink HR applications or CRM is really a massive disruption,” said Guru Chahal, partner at Lightspeed Venture Partners. “That’s a guaranteed massive disruption that’s exciting and covers a trillion dollars of spend on workforce and knowledge work that’s simply not touchable.”

“That’s the real opportunity—to reimagine these workflows,” said Asheem Chandna, Greylock partner. “In some cases, it’s going to be a copilot for augmentation and…I think that’s going back to the incumbents, but the real opportunity is if you can just rethink the whole piece.”

This isn’t to say that incumbents will have it all figured out—the transition is going to be “clunky,” said Deeter, and it’s hard to not to believe him as we continue to watch incumbents and startups alike try to find the AI business model of best fit. 

Everyone I talk to has a different take on where we are in the AI cycle and the possibility of an AI bubble burst. But I think there’s perhaps one thing we can agree on—that we’re not going to stop talking about it anytime soon. 

Debate time…Last night, Kamala Harris and Donald Trump met for a debate. On X, most VCs and tech founders reacted in a predictable partisan fashion, but it appears some minds may have been swayed. Mark Pincus, former Zynga CEO, previously has spoken in support of Trump, but in responding to Lux Capital cofounder Josh Wolfe’s laudatory tweet regarding Harris’ performance, he suggested that he’d been impressed with Harris. Silicon Valley’s intensely partisan discourse continues, and the memes were instantaneous.

See you tomorrow,

Allie Garfinkle
Twitter: @agarfinks
Email: alexandra.garfinkle@fortune.com
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Nina Ajemian curated the deals section of today’s newsletter.

VENTURE DEALS

- Qualifyze, a Frankfurt, Germany-based supply chain risk management for the life sciences industry, raised $54 million in Series B funding. Insight Partners led the round and was joined by existing investors HV Capital, HarbourVest Partners, H14 and Cherry Ventures.

- Quantum Source, a Ness Ziona, Israel-based photonic quantum computer technology company, raised $50 million in Series A funding. Eclipse led the round and was joined by Standard Industries, Level VC, Canon Equity, and existing investors Pitango First, Grove Ventures, 10D, and Dell Technologies Capital.

- Smartcat, a Wilmington, Del.-based language AI platform, raised $43 million in Series C funding from Left Lane Capital.

- webAI, an Austin, Texas-based AI development platform, raised $43 million in Series A funding from Forerunner Ventures, Mike Abbott, David Beirne, and David Shuman.

- Spare, a Vancouver, Canada-based mobility operations software provider, raised $42 million CAD ($30.9 million) in Series B funding. Inovia Capital led the round and was joined by existing investors Kensington Capital and Nicola Wealth.

- Radiant Biotherapeutics, a Toronto, Canada-based antibody platform biotech company, raised $35 million in Series A funding. The Bill & Melinda Gates Foundation and Amplitude Ventures led the round and were joined by BDC Capital, abrdn plc, and existing investors FACIT, Alexandria Venture Investments, and Toronto Innovation Acceleration Partners.

- AttoTude, a Menlo Park, Calif.-based interconnect technology developer for AI and hyperscale data center applications, raised $29 million in Series A funding from Sutter Hill Ventures, Canaan Partners, and Wing Venture Capital.

- Candid Health, a San Francisco, Calif.-based revenue cycle automation platform for healthcare providers, raised $29 million in Series B funding. 8VC led the round and was joined by existing investors First Round Capital, BoxGroup, and Y Combinator.

- Polly, a San Francisco, Calif.-based mortgage capital markets technology company and product and pricing engine developer, raised $25 million in funding. 8VC led the round and was joined by existing investors Menlo Ventures, Meritech, Khosla Ventures, and Fifth Wall.

- FlexiLoans, a Mumbai, India-based digital lending platform, raised $24.5 million in Series C funding from Accion, Nuveen, Fundamentum, and existing investor Maj Invest.

- Puraffinity, a London, England-based developer of materials that remove chemicals from water, raised £16.93 million ($22.1 million) in Series A funding from BGF, Octopus Ventures, HG Ventures, and others.

- Retraced, a Düsseldorf, Germany-based SaaS supply chain risk analysis platform for fashion and textile brands, raised €15 million ($16.5 million) in Series A funding. Partech led the round and was joined by existing investors Alante Capital, Alstin Capital, Samaipata, and F-Log Ventures.

- P0 Security, a San Francisco, Calif.-based cloud security platform, raised $15 million in Series A funding. SYN Ventures led the round and was joined by Zscaler and existing investor Lightspeed Venture Partners.

- Elum Energy, a Paris, France-based energy management solutions provider for renewable energy systems, raised $13 million in Series B funding. Energize Capital led the round and was joined by existing investors Alter Equity and Cota Capital.

- NanoSyrinx, a Coventry, England-based synthetic biology company and nanosyringes developer, raised £10 million ($13 million) in funding. BGF, Octopus Ventures and M Ventures led the round and were joined by Eli Lilly and existing investors IQ Capital and Meltwind.

- appCD (now StackGen), a San Francisco, Calif.-based generative infrastructure from code company, raised $12.3 million in seed funding. Thomvest Ventures led the round and was joined by existing investors WestWave Capital, FireBolt, and Secure Octane.

- Mindtrip, a San Francisco, Calif.-based AI-powered travel platform, raised $12 million in funding from Forerunner Ventures and existing investor Costanoa.

- Protege, a New York City-based AI training data platform, raised $10 million in seed funding. CRV led the round and was joined by SV Angel, Liquid 2 Ventures, Bloomberg Beta, and others.

- IN1, a Warsaw, Poland -based fiat and cryptocurrencies management platform, raised $6 million in seed funding from Svitlana Monastyrska,  Oleksandr Velykyi, Brainstorm, and others.

- Element Security, a Tel Aviv, Israel-based cyber security platform, raised $5 million in funding from Q Fund VC, Eddy Shalev, Danny Yamin, and Kobi Rosengarten.

- MOTHER Games, a Brooklyn, N.Y.-based art and media company for gaming, raised $5 million in funding. Shine and Lerer Hippeau led the round and were joined by BoxGroup.

- Reshape Automation, a San Francisco, Calif.-based automation platform for manufacturer and warehouse operators, raised $5 million in seed funding. Ironspring Ventures led the round and was joined by Haystack, Supply Chain Ventures, Remus Capital, Expansion VC, and existing investors Schematic Ventures and Bee Partners.

- Bariendo, a San Francisco-based weight management platform, raised $3.8 million in seed funding. SeaX Ventures led the round and was joined by others.

- Cashmere, a Los Angeles, Calif.-based AI-powered client acquisition platform for wealth management firms, raised $3.6 million in seed funding. Canapi Ventures led the round and was joined by Benchstrength, Plug and Play, The House Fund, Courtyard Ventures, and angel investors.

- Optalitix, a London, England-based insurance and finance software provider, raised $3 million in funding. Calculus Capital led the round and was joined by 24 Haymarket and others.

- ConnectWise, backed by Thoma Bravo and 345 Partners, agreed to acquire Axcient, a Denver, Colo.-based data protection and disaster recovery solutions provider. Financial terms were not disclosed.

- Heritage Group acquired a minority stake in Equiti Health, a Sunrise, Fla.-based language interpretation services provider for the healthcare industry. Financial terms were not disclosed.

- Madison Dearborn Partners acquired a majority stake in Harmonia Holdings Group, a McLean, Va.-based technology solutions provider for the U.S. federal government. Financial terms were not disclosed.

- Vista Equity Partners and Warburg Pincus agreed to acquire Redwood Software, a Frisco, Texas-based automation fabric solutions provider. Financial terms were not disclosed.

EXITS

- Brightmore Brands, a portfolio company of Beach Point Capital Management, acquired Texas Thrift, an Arlington, Texas-based portfolio of 17 thrift stores in Texas, from Brook Valley Management. Financial terms were not disclosed.

- OceanSound Partners acquired PAR Excellence Systems, a Cincinnati, Ohio-based automated inventory management systems solutions provider for the healthcare industry, from Northlane Capital Partners. Financial terms were not disclosed.

OTHER

- CSC Generation Enterprise acquired Backcountry, a Park City, Utah-based outdoor recreation gear and apparel retailer. Financial terms were not disclosed.

- Globant acquired Blankfactor, a Miami, Fla.-based IT service consulting firm for financial services. Financial terms were not disclosed.

- FrontView REIT, a Dallas, Texas.-based outparcel properties acquisition, ownership, and management company, filed to go public on the New York Stock Exchange. The company posted $56 million in revenue for the year ending June 30, 2024.

- Bain Capital Life Sciences, the Boston, Mass.-based venture capital arm of Bain Capital, raised $3 billion for its fourth fund focused on the healthcare and life sciences sectors.

PEOPLE

- Bessemer Venture Partners, a San Francisco, Calif.-based venture capital firm, promoted Aia Sarycheva to vice president.