In FOMO-driven 2021, being ‘good enough’ could win startups a VC term sheet on the back of a takeaway menu. Today, with funding far harder to come by, tech entrepreneurs need to be truly exceptional to raise capital at a reasonable valuation. Unless, that is, their company is in a handful of red-hot categories, most notably Generative AI. 

Amid a funding crunch, Generative AI has become the buzziest sector in tech. In the first half of 2023, investors funded generative AI companies globally to the tune of $14.1B, and although most of that was down to Microsoft’s $10B investment in ChatGPT creator OpenAI, by the end of June it was already a record year for investment in GenAI startups, with funding rising by more than 5x compared with the whole of last year. 

But as with any VC feeding frenzy in tech, from crypto to 10 minute grocery delivery, it can be tricky to separate the hype from hard facts, not least because merely attaching the phrase GenAI to your startup is more likely to get you through the door. One of the first tasks of any investor, therefore, is to discern the real deal from the wannabe. One fail safe way to do this is to look out for pedigree; the best founders in the space tend to have come from a particular university department, or company with a reputation for AI research excellence. There are not many of them in the world.

Since our founding, Techstars has made over a thousand investments in companies that we categorize as AI or Machine Learning-focused or adjacent, with our first investment way back in 2009. One of the many areas where we see huge potential in the immediate future is at the intersection of GenAI and ecommerce, which is why we are partnering with eBay to run a program in the Bay Area focused on the future of the digital economy, which kicks off today. 

Retail was one of the earliest sectors to be disrupted by the Internet, and although many of us live much of our lives online, it is worth noting that as a percentage of total retail sales (excluding vacations, autos, gas and tickets), in 2022 just 18.8% of all sales in the U.S. were made digitally (for France, Germany and the UK the equivalent figures are 14.9%, 19.6% and 26.5% respectively). With the online tipping point in retail thus still far off, it suggests there’s plenty of white space for innovation. And with most of the low hanging fruit of ecommerce now solved (e.g. one day deliveries; making returns easier; shopping for shoes online), technologists are now turning to GenAI to address the next, more complex layer, from individualization through personal shopping assistants – retailers have never known so much about their customers – to the mechanics of customer acquisition, retention and support. 

Customer acquisition costs have risen steadily, by an average of 60%, over the past five years, which is why building engagement is more important than ever for retailers. Unsurprisingly there is a huge amount of activity in this space including startups who have been through Techstars programs. Paris-based Veesual.ai, for example, uses GenAI to enable online shoppers to select a mannequin which most closely resembles themselves, and then swipe between different garments to dress them in a virtual fitting room. High definition imagery creates more engaged customers which results in higher conversion rates for brands. 

‘Emotion analytics’ platform Kouo helps product teams understand and analyze consumer emotions by using AI to glean data from their everyday wearables, such as smart watches. By tapping into their users’ physiological responses such as heart rate and variability, breathing rate and muscle tension, Kouo’s customers can better pinpoint when and why users are churning, how to retain them and build better products. 

In a similar vein, GenAI-powered content is already transforming the customer journey from generating marketing copy and product listings, through to personalized recommendations and customer support. Speak.ai’s natural language processing platform enables its users to scrape Amazon reviews to produce datasets of what people are saying about products, brands and customer services – useful for product development ideas and market insights. 

GenAI is also helping retailers and designers slash waste and be more productive. yoona.ai, uses the tech to automate the product design process itself, drastically cutting time-to-market for fashion companies, with the additional upside of reducing sample production, shipment and material waste. 

Even allowing for the hype currently engulfing this technology, GenAI is set to unleash vital efficiencies and innovation in what is after all a low margin business. Of course, as with any technology riding the crest of a wave, some use cases will stick, others won’t. But such is the velocity of change, the ecommerce of tomorrow will look very different to today’s.  

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