The old VC rule was simple: avoid services businesses. AI is…

Praveen Paranjothi · 2026-05-11T09:08:54.000Z

VCs shunned service companies. With AI, the math has changed and venture capital is now chasing the companies they once avoided. Traditionally service companies were not venture scale. They were, Too linear. Too dependent on people. Too hard to scale. Too low-margin. Too “lifestyle.” What’s changing now is not that VCs are falling in love with agencies; AI is fundamentally changing the economics of service companies. An AI-native agency can: • deliver faster with smaller teams • productize repeatable workflows • operate globally from day one • increase margins through automation • retain institutional knowledge inside systems, not just employees • potentially scale revenue without scaling headcount proportionally In many cases, these businesses now look less like traditional agencies and more like software-enabled operating systems around expertise. Historically: Software = scalable Services = linear AI is blurring that distinction. Some of the most interesting companies over the next decade may not be pure SaaS companies, but AI-native service businesses with deep domain expertise, distribution, and proprietary workflows. Ironically, the same model once dismissed as a “lifestyle business” is now becoming investable again - because AI changes the leverage equation. https://www.inc.com/zain-jaffer/vc-venture-capital-funding-business-model-ai-native/91342046

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The old VC rule was simple: avoid services businesses. AI is… | Newnex