Why investors see the potential in AI-powered, copy-generating adtech companies


Image Credits: Getty Images

Sophisticated AI systems like OpenAI’s GPT-3 can write prose that’s impressively human-like, or at least good enough to fool the average person. They’ve been used to generate essays, poetry, stories, news reports and more to impressive effect. Perhaps it was only a matter of time, then, before entrepreneurs saw an opportunity to leverage such systems to write marketing copy.

Scale makes AI a great fit for ads. Copywriting is time-consuming work, and AI — being machine-powered — theoretically never stops working. But a greater benefit is personalization. AI systems can target the text of ads to particular segments of customers or even individual customers, making them resonate stronger. At least in theory.

According to a 2021 survey by Phrasee, 63% of marketers would consider investing in AI to generate and optimize ad copy. It’s an admittedly biased finding — Phrasee sells AI-powered copy generation software. But vendor-neutral analytics firm Statista reports that 87% of current AI adopters are already using, or considering using, AI for sales forecasting and improving their email marketing.

Investors are bullish on the idea, in any case. Copysmith last April secured $10 million in financing for its AI-powered “creative content” generation platform. Copy.ai, a rival building similar algorithm-based copywriting tools for businesses, closed a $10 million round in October.

To get to the bottom of the enthusiasm for copy-generating tech, TechCrunch reached out to partners at VC firms who’d invested in startups in the nascent space within the last two years. We spoke with Sandhya Venkatachalam, a Khosla Ventures partner specializing in AI and machine learning startups, and Wing Venture Capital partner Zach DeWitt.

DeWitt asserts that AI-powered adtech makes solid business sense because it automates many repetitive, mundane copywriting tasks. Rather than suck human creativity out of the process, he argues, platforms like Copysmith and Wing-backed Copy.ai — as well as Jasper, InstaCopy, ContentEdge, and Khosla and Wing portfolio company Simplified — allow professionals to focus their energy on higher-level tasks while saving organizations money.

For instance, Simplified can generate quotes and paragraphs about products for blogs, emails, Facebook ads and even short e-books. The platform’s AI can write in over 10 different tones, according to Simplified’s website, optionally serving as a writing aid by “expanding” human-written sentences, inserting paragraphs or rewriting previously written content.

Image Credits: Simplified

Copysmith, which says its tools are used by teams at Google, Change.org and Marshalls, among others, promises to “write and launch search engine optimized (SEO)-focused product descriptions and meta tags” that “outrank the competition” and “convert shoppers to customers in record time.” The company’s copy-composing AI is trained on best practices in SEO and growth marketing, Copysmith claims, and able to generate blog posts and site pages on the fly.

“AI-powered writing applications will thrive throughout economic cycles because they help make customer acquisition more efficient and profitable and save companies time and money on copywriting efforts,” DeWitt said in an email. “Why have a human spend 50 hours writing hundreds of product descriptions for an online marketplace as opposed to having [AI] auto-generate all of these descriptions in minutes?”

Venkatachalam agrees, but with the caveat that the technology and team must be sufficiently differentiated. “AI that allows any kind of relevant, useful content generation at scale — including marketing copy — is a good technology bet,” she told TechCrunch via email. “We invested in OpenAI, and DALL-E 2 is showing what you can do with images and natural language today. You can imagine the power of AI doing the same for marketing.”

Khosla was among the early investors in OpenAI alongside the charitable foundation of LinkedIn co-founder Reid Hoffman. Entire adtech companies have been formed on top of GPT-3, Venkatachalam notes, including the aforementioned Copy.ai, Broca and Snazzy.

Of course, developing and running the AI that powers these services can be quite expensive. OpenAI is estimated to have spent $4.6 million training GPT-3, and one source pegs the cost of hosting GPT-3 on a single AWS instance (p3dn.24xlarge) at $87,000 per year. Companies that offer services on top of cloud-hosted models from OpenAI and others, meanwhile, must factor in the cost of API calls, which average around a few cents per 1,000 words.

But Venkatachalam doesn’t see this as a concern for teams that — in her own words — “have the right expertise in [AI development costs] and that are building real software solutions for which they can charge meaningfully.” This might entail fine-tuning models to work better for a given set of verticals, industries or customers, she said.

“If you are just putting a ‘cover’ on GPT-3 then yes, [operating costs] might be a concern,” Venkatachalam said. “The technology [and] models are just the starting point for great founders to create entirely new solutions for the current market. Yes, there are a ton of startups that are just putting a wrapper on these models to make them a bit more accessible, and we think that is not the way to go. But companies like ContentFly and Simplified are using them to democratize access to full software solutions or marketplaces previously unaffordable to smaller teams and organizations. They are rethinking the way marketing software suites work from the ground up, which includes understanding user workflows and building really differentiated products with the underlying technology.”

Image Credits: Copysmith

Innovation in the space has the potential to pay off in spades. Copy.ai grew revenue to over $2 million in its first year (2020) and has more than tripled it in its second year, DeWitt claimed. Venkatachalam said that Simplified has seen 10x user growth (to 1 million) and 5x annual recurring revenue growth since its founding, with almost 1 billion words and 800,000 documents generated on the platform. Jasper claims to have more than 55,000 paying subscribers, and OpenAI told Wired in a recent piece that one competitor has more than 1 million users.

“It can be expensive to run these models at scale, [but] the winners in this market will figure out how to make the unit economics work,” DeWitt said. “I believe there will be at least one over-$10 billion business built in this space, maybe multiple.”

It remains to be seen whether the optimism is warranted — after all, Khosla and Wing have a vested interest in copy-generating technology catching on. Also, as Wired notes in the above-linked piece, the technology has problematic aspects, like the potential to commit plagiarism — regurgitating text that appeared in its training data scraped from the web.

DeWitt rightly points out that growth in digital commerce is fueling the demand for adtech solutions more broadly, however. Last year, the number of investment deals in adtech and marketing tech companies grew by more than 200% year on year, according to a report from investment bank Luma.

“We expect this category of generative AI to continue expanding into other marketing use cases, such as image generation, video, etc., on top of fundamentals learned within the copy generation use case,” DeWitt said. “Recent advancements in AI are now enabling personalized copy generation at scale. At Wing, we believe that the majority of online content will be created by AI by 2030.”

Venkatachalam added: “The generation of marketing copy is one of the first, more obvious applications of powerful new large AI language models. As this general space evolves, we will see more applications in areas like design. Other areas could include using natural language to design user experience, but without any code or using natural language to edit, review and even write code for you. The possibilities are actually endless.”

More TechCrunch

Meta’s Oversight Board has now extended its scope to include the company’s newest platform, Instagram Threads, and has begun hearing cases from Threads.

Meta’s Oversight Board takes its first Threads case

The company says it’s refocusing and prioritizing fewer initiatives that will have the biggest impact on customers and add value to the business.

SeekOut, a recruiting startup last valued at $1.2 billion, lays off 30% of its workforce

The U.K.’s self-proclaimed “world-leading” regulations for self-driving cars are now official, after the Automated Vehicles (AV) Act received royal assent — the final rubber stamp any legislation must go through…

UK’s autonomous vehicle legislation becomes law, paving the way for first driverless cars by 2026

ChatGPT, OpenAI’s text-generating AI chatbot, has taken the world by storm. What started as a tool to hyper-charge productivity through writing essays and code with short text prompts has evolved…

ChatGPT: Everything you need to know about the AI-powered chatbot

SoLo Funds CEO Travis Holoway: “Regulators seem driven by press releases when they should be motivated by true consumer protection and empowering equitable solutions.”

Fintech lender SoLo Funds is being sued again by the government over its lending practices

Hard tech startups generate a lot of buzz, but there’s a growing cohort of companies building digital tools squarely focused on making hard tech development faster, more efficient and —…

Rollup wants to be the hardware engineer’s workhorse

TechCrunch Disrupt 2024 is not just about groundbreaking innovations, insightful panels, and visionary speakers — it’s also about listening to YOU, the audience, and what you feel is top of…

Disrupt Audience Choice vote closes Friday

Google says the new SDK would help Google expand on its core mission of connecting the right audience to the right content at the right time.

Google is launching a new Android feature to drive users back into their installed apps

Jolla has taken the official wraps off the first version of its personal server-based AI assistant in the making. The reborn startup is building a privacy-focused AI device — aka…

Jolla debuts privacy-focused AI hardware

OpenAI is removing one of the voices used by ChatGPT after users found that it sounded similar to Scarlett Johansson, the company announced on Monday. The voice, called Sky, is…

OpenAI to remove ChatGPT’s Scarlett Johansson-like voice

The ChatGPT mobile app’s net revenue first jumped 22% on the day of the GPT-4o launch and continued to grow in the following days.

ChatGPT’s mobile app revenue saw its biggest spike yet following GPT-4o launch

Dating app maker Bumble has acquired Geneva, an online platform built around forming real-world groups and clubs. The company said that the deal is designed to help it expand its…

Bumble buys community building app Geneva to expand further into friendships

CyberArk — one of the army of larger security companies founded out of Israel — is acquiring Venafi, a specialist in machine identity, for $1.54 billion. 

CyberArk snaps up Venafi for $1.54B to ramp up in machine-to-machine security

Founder-market fit is one of the most crucial factors in a startup’s success, and operators (someone involved in the day-to-day operations of a startup) turned founders have an almost unfair advantage…

OpenseedVC, which backs operators in Africa and Europe starting their companies, reaches first close of $10M fund

A Singapore High Court has effectively approved Pine Labs’ request to shift its operations to India.

Pine Labs gets Singapore court approval to shift base to India

The AI Safety Institute, a U.K. body that aims to assess and address risks in AI platforms, has said it will open a second location in San Francisco. 

UK opens office in San Francisco to tackle AI risk

Companies are always looking for an edge, and searching for ways to encourage their employees to innovate. One way to do that is by running an internal hackathon around a…

Why companies are turning to internal hackathons

Featured Article

I’m rooting for Melinda French Gates to fix tech’s broken ‘brilliant jerk’ culture

Women in tech still face a shocking level of mistreatment at work. Melinda French Gates is one of the few working to change that.

1 day ago
I’m rooting for Melinda French Gates to fix tech’s  broken ‘brilliant jerk’ culture

Blue Origin has successfully completed its NS-25 mission, resuming crewed flights for the first time in nearly two years. The mission brought six tourist crew members to the edge of…

Blue Origin successfully launches its first crewed mission since 2022

Creative Artists Agency (CAA), one of the top entertainment and sports talent agencies, is hoping to be at the forefront of AI protection services for celebrities in Hollywood. With many…

Hollywood agency CAA aims to help stars manage their own AI likenesses

Expedia says Rathi Murthy and Sreenivas Rachamadugu, respectively its CTO and senior vice president of core services product & engineering, are no longer employed at the travel booking company. In…

Expedia says two execs dismissed after ‘violation of company policy’

Welcome back to TechCrunch’s Week in Review. This week had two major events from OpenAI and Google. OpenAI’s spring update event saw the reveal of its new model, GPT-4o, which…

OpenAI and Google lay out their competing AI visions

When Jeffrey Wang posted to X asking if anyone wanted to go in on an order of fancy-but-affordable office nap pods, he didn’t expect the post to go viral.

With AI startups booming, nap pods and Silicon Valley hustle culture are back

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

A new crop of early-stage startups — along with some recent VC investments — illustrates a niche emerging in the autonomous vehicle technology sector. Unlike the companies bringing robotaxis to…

VCs and the military are fueling self-driving startups that don’t need roads

When the founders of Sagetap, Sahil Khanna and Kevin Hughes, started working at early-stage enterprise software startups, they were surprised to find that the companies they worked at were trying…

Deal Dive: Sagetap looks to bring enterprise software sales into the 21st century

Keeping up with an industry as fast-moving as AI is a tall order. So until an AI can do it for you, here’s a handy roundup of recent stories in the world…

This Week in AI: OpenAI moves away from safety

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine