Every year, the OpenOcean team compiles its investment insights for the upcoming year by closely analysing the evolving global economic landscape and the technology developments of the previous year. Read our predictions from the year 2023 here.
Reflecting on 2023, it’s impossible not to mention the transformative and groundbreaking impact of Generative AI on the technology industry, affecting not just end-users but also many larger companies that have successfully integrated Large Language Models (LLMs) into their existing products and processes, thereby speeding up the digitalisation and automation of societies at large.
As we look towards 2024, OpenOcean General Partners Ekaterina Almasque, Patrik Backman and Tom Henriksson predict not only the continuing ripple effects of the Generative AI hype but also significant shifts in other areas. These include the growth of the enterprise automation industry, the evolution of open-source communities, and the shift from ESG awareness to achieving real impact in evaluating startups.
Ekaterina Almasque, General Partner at OpenOcean
“The hype around Gen AI will continue to sweep through the economy, disrupting almost all verticals, even those already impacted by AI. Some of the areas I will be keeping a close eye on for opportunities to build new winners include cloud infrastructure, software development/DevOps and further automation of areas like cybersecurity and health.”
Generative AI – Navigating Hype with Value
“The hype around Generative AI will continue gaining momentum in 2024, fuelled by large corporate budgets and investor excitement. It will continue to sweep through the economy, disrupting almost all verticals, even those already impacted by AI. Some of the areas I will be keeping a close eye on for opportunities to build new winners include cloud infrastructure, software development and DevOps and further automation of areas like cybersecurity and health. This opens an opportunity to create completely new winners in the space, and this is where the VC industry will continue to search holy grails.
For Generative AI there will be a reckoning with the fact that its output is non-transparent or difficult to explain. By the end of 2024, enterprises will start taking a step back to carefully evaluate where Generative AI is actually driving value without putting their business at risk. Yes, the hype will remain, but it will start to show cracks as companies analyse if the big investments in this technology are truly paying off. The winners will be the players that can deliver trustworthy and safe AI solutions.
At OpenOcean, we are looking for tools that enable enterprises to adopt AI on a large scale while prioritising transparency. Recognising the challenges of non-transparent AI outputs and the regulatory demands for AI, our investment strategy will focus on solutions that offer clarity and accountability in AI operations. Our goal is to support the development of AI systems that are not only innovative but also safe, ensuring that enterprises can harness the full potential of AI while maintaining regulatory compliance and achieving best possible operational efficiency."
Disrupting Enterprise Cloud Amid Cost and Regulatory Challenges
"In 2024, the focus will shift toward discussions of responsible AI. As regulations tightens, the debate will revolve around protecting societies from AI misuse while ensuring that innovation is not hindered. Central to this debate are two philosophical approaches – open-source and proprietary AI stacks. The primary argument will center on which approach is safer for the public. We at OpenOcean, are strong believers of open-source. However, I would encourage investing in strategies that make open-source AI systems inherently less prone to malicious manipulations.
The high costs of running AI infrastructure are currently masked by the unbalanced input of funding, and this is unsustainable. Costs are driven by growing hardware monopolies and increasing size of data-hungry models. However, when funding for Generative AI starts to become more result-oriented and cost-conscious in 2024, infrastructure expenses will start to be a major barrier to growth, especially for startups with private funding lacking big corporate budgets and being judged by cost-efficiency.
In 2024, demand for cost-effective AI infrastructure will potentially challenge Nvidia's market dominance. On the software infrastructure side, there will be new winners to help develop and deploy AI, whether through hardware solutions to break Nvidia's monopoly or software solutions to support the AI-enabled stack. Regulatory emphasis will shift to demystifying AI decision-making processes, requiring tools for deeper model evaluation. Startups focused on transparent AI development frameworks will see significant growth in 2024. As enterprise AI budgets shift from generative apps to auditable infrastructure, crucial but less headline-grabbing backend startups will attract funding next year."
Patrik Backman, General Partner at OpenOcean
“2024 will be the year Big Tech faces the consequences of its exploitation of the open-source community. New licensing approaches will emerge to sustainably monetise open-source software. Developers are realising maintaining high-quality open source requires reasonable restrictions, not total freedom. This will lead to healthier open-source ecosystems that better reward contributor efforts.”
The Big Open-Source Reckoning
“Generative AI has significantly impacted the open-source community. According to GitHub's annual Octoverse report, 65,000 public Generative AI projects were created on GitHub in 2023 – a record 248% year-over-year growth. Simultaneously, while the open-source industry is growing, 2024 will be the year Big Tech faces the consequences of its exploitation of the open-source community. New licensing approaches will emerge to sustainably monetise open-source software. Developers are realising maintaining high-quality open source requires reasonable restrictions, not total freedom. This will lead to healthier open-source ecosystems that better reward contributor efforts.
I will be looking out for influential projects to pioneer ‘open core’ models and reformed viral licenses. These will thoughtfully restrict cloud providers from free-riding on open source while still fostering collaboration. This will mean that open-source contributors will be financially incentivised for the first time at scale. This ultimately means better code, documentation, and sustainability.”
From ESG Awareness to Impact
“Post-COP28, there is an increasing recognition that private companies, including startups, play a crucial role in achieving ESG goals. This means that sustainability will evolve from superficial ESG messaging to real-world impact in 2024. With better data tools, investors can cut through greenwashing to fund serious decarbonisation efforts. Startups will be challenged to prove concrete ESG progress, not just noble intentions. This will separate leaders truly driving change from those simply capitalising on the hype. There is a great desire in many VC funds to invest in the future. An increasing number of funds, particularly in Europe, share a mission statement to back technologies that will help make the world a better place. Just look at the huge rounds recently for companies in this space, such as quantum leader IQM’s €128 million Series A to help “combat the climate crisis”.
Impact measurement and accounting will become standardised, allowing investors to quantify sustainability gains. The fragmented carbon tracking market will consolidate around a few leading providers in each region, and companies will be asked to demonstrate actual emission reductions and other ESG benefits. Those who can back up claims with data will attract capital, while those overclaiming will be exposed.”
Tom Henriksson, General Partner at OpenOcean
“Although the economic situation for 2024 is looking challenging, there are sectors with good investment opportunities. An exciting growth area is task or activity mining technology solutions within automation. With belts continuing to be tightened, businesses want employees and processes to be as efficient as possible.”
Continuous Growth of Enterprise Automation Software
“Investment in automation software is defying the general mixed picture for the market. OpenOcean’s 2023 Automation Market Map found $13.5 billion raised capital by enterprise automation companies in H1 2023 – greater than the entirety of 2022. This surge in investment was propelled by significant funding rounds, including OpenAI's $10.3 billion from Microsoft, Flexport's $935M Series E, and Rippling's $500M Series E. Leading sectors like IT Operations (ITOps), end-to-end (E2E) automation, and Sales & Marketing were particularly noteworthy for their high value.
The interest in automation software will continue into 2024. As cost-saving remains front of mind for leaders, enterprise automation will particularly remain important for businesses to get the most of their workforce, streamlining workflows, automating repetitive tasks, and freeing up teams for more value-added activity. A key focus will be on platforms that provide organisation-wide real-time data on current activities and processes. Having this information will set them up well for subsequent implementation of AI-driven solutions for automation and orchestration of work across the enterprise.
In 2024, the enterprise automation space will experience a continued transformative shift because of AI. Already in 2023, some companies have successfully integrated LLMs into existing products, and this trend is going to intensify in the year ahead. In fact, expect to see a surge of startups that are fundamentally built around LLMs and using Generative AI. Principally, these startups will be focused on automatically building enterprise workflows and reshaping how enterprises execute tasks and activities. While the economic situation will be challenging, the enterprise automation sector will be a growth opportunity for investors in 2024.”
Growth area within Automation: Task and Activity Mining
“Although the economic situation for 2024 is looking challenging, there are sectors with good investment opportunities. An exciting growth area is task or activity mining technology solutions within automation. With belts continuing to be tightened, businesses want employees and processes to be as efficient as possible. Task or activity mining empowers organisations to be more efficient and improve or automate work, which means these solutions are likely to experience further growth in 2024. The technology has developed to a point where buyers are recognising it can give detailed insights and results, improving granular processes and activities for people working on their digital devices. So, expect task and activity mining to take off over the coming year.”