In this quickfire Q&A, Ivan Nikkhoo, managing partner at Navigate Ventures, shares his thoughts on how AI startups can navigate the changing landscape, as the excitement of the AI bubble gives way to more realistic valuations and strategic acquisitions.

Which firms will thrive, which will be acquired, and how can entrepreneurs position themselves for long-term success in the evolving AI market?
There are two parts to this answer. One has to do with funding; the other, product market fit and commercialisation. Silicon Valley dominates the number of top AI startups largely because funding is most readily available in that region. The availability of capital is attracting the best players, and the top venture capitalists (VCs) will continue to support them. These startups will have the best probability of eventual success. There are other pockets in the secondary tech ecosystems where brilliant founders are developing AI enabled platforms addressing big problems and large markets. They will achieve product market fit faster and will be able to monetise.

You’ve suggested that the ‘AI bubble’ may have already burst. Can you elaborate on the key signs indicating this shift has occurred and what it means for current startup valuations?
As with previous cycles, a small number of “leaders” will emerge attracting the majority of capital and commanding higher valuations. These companies will evolve into dominant platforms. Meanwhile a second tier of “laggards” will establish solid businesses but will not merit leadership positions. Their valuations will be at a discount compared to the leaders. Beyond these groups, many ventures will ultimately fail. Institutional capital consistently seeks the most favourable risk-reward profiles. Companies that become sector leaders, demonstrate better unit economics and growth profiles than their smaller, lesser competitors. This attracts more capital, better talent and creates an expansion cycle, allowing the leading platform to acquire and absorb the smaller ones at significantly lower valuations.

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Many AI startups are facing flat or down rounds. What strategies should these companies employ to navigate potential M&A interest and avoid stagnation?
As the “leaders” and platforms begin executing their strategies, they will actively seek acquisition targets. For companies that lack the potential to become leaders themselves, the best approach is to proactively position themselves as attractive acquisition candidates. Timing is critical, once the leaders complete their acquisition moves, the pace of transactions and valuations will decline significantly, leaving fewer opportunities for smaller players to exit at favourable terms.

The first step in positioning your company for acquisition is gaining a clear understanding of the sector’s landscape. Start by identifying key players and competitors, analysing how much capital they have raised, and determining their key investors. Next closely track their M&A activity to understand patterns and preferences. The key step is to evaluate your product line and roadmap to assess potential strategic alignment with top players. This alignment could take many forms: geographic expansion, features and functionalities, specific industry vertical expertise or converted client base. Once a strategic fit has been identified, actively work to ensure your company is visible. Demonstrate how an acquisition would be accretive to their business by clearly articulating how your offering addresses their strategic goals. By positioning yourself as a valuable and indispensable addition to their platform, you increase the likelihood of attracting interest and securing a successful exit.

What factors differentiate the high-performing AI startups poised to thrive from those likely to struggle or face acquisition?
Accelerated path to product market fit, repeatable sales model and large and growing mode. Additionally the ability to on-board new enterprise clients in an efficient and timely manner, and providing world class customer success are key. For enterprise SaaS startups, reaching the first $1M is often the hardest milestone. Scaling from $1M to $3M, and then to $6M, $10M becomes easier, but it presents its own challenges. Many founders underestimate the complexities of scaling, often remaining overly focused on perfecting the product rather than addressing evolving customer needs. This misalignment can lead to stagnation in growth, churn in the existing client base and a failure to upsell or expand within current accounts, all negative signals for investors and the market.

How do you see leading venture capitalists reshaping their investment approaches to focus on future platform leaders in the AI sector?
VCs, by nature, focus on backing winners. This means they prioritise supporting companies they believe have the potential to become future platforms while allowing others to fend for themselves. Historically this has led to a concentration of capital flowing toward a select few businesses that demonstrate the greatest potential for outsized returns. The underlying rationale is all about risk versus reward. With limited capital to deploy, smart investors aim to maximise returns by doubling down on their top-performing portfolio companies.

Can you explain why sustaining high valuations for top-performing AI startups is crucial for the broader venture ecosystem and its long-term investment cycles?
Sustaining high valuations for top-performing AI startups is crucial for the broader venture ecosystem because it fuels innovation, attracts capital and supports the development of the ecosystem. In the short term, the ongoing hype will sustain high valuations, enabling startups to raise additional capital and attract funding to new entrants, thereby creating growth and strengthening the ecosystem.

As AI becomes embedded in everyday technologies and transitions from being a “disruptive” technology to “mainstream,” much like the Internet did, valuations will inevitably shift to being based on tangible returns rather than hype. Over time, the ecosystem will mature, and capital will flow toward companies demonstrating superior product-market fit, sustainable growth and strong unit economics.

What advice would you give to emerging entrepreneurs in AI who are looking to position themselves for long-term success?
AI is a set of tools. Identify a big problem in an industry you have a connection with and understand well, and use the latest tools, technology, and AI to solve that problem. This begins by identifying who are the potential customers that will benefit from this transformation, and if they are willing and able to migrate to the new technology. These platforms will not be incremental improvements to existing solutions, rather complete transformation of how these enterprises use technology, more user friendly, live data, interactive, and continuous feedback. This will require significant and professional education and customer support and smooth and frictionless onboarding. The ideal scenario is creating an AI enabled vertical SaaS overlay platform to solve a problem in an industry with a large market. This allows for a faster path to product market fit and monetisation, on-boarding and consistent growth.

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