Substrate Artificial Intelligence’s chief executive, Ivan Garcia, wants to be the Warren Buffett of artificial intelligence.
Not necessarily the multi-billionaire investor the Sage of Omaha is today, moulded by six decades of stock picking. Though no doubt this element of success along the way would be nice.
No, Garcia wants to emulate Buffett 1.0 where the foundation of his wealth was the takeover of ailing textiles company, Berkshire Hathaway.
In the 1960s and ‘70s, this provided the umbrella for wholly-owned insurance, confectionary and fast food businesses acquired because their stock and management were underrated by the market.
For Berkshire Hathaway read Substrate, which is part incubator, part fund and part holding company ready to spin out an operation capable of standing on its own two feet.
The ‘Grahamesque’ focus on value should be replaced by Garcia and his team’s obsession with using AI in the real world to solve problems that exist now rather than being theoretical.
Limiting the downside, Substrate has acquired businesses in the areas of fintech, energy, agri-tech, human resources and health that are already revenue-generating – to the tune of an annual 12 million euros currently.
Layered on after that is a focus on deploying AI for practical applications, from which co-founder and chief technical officer, Bren Worth, expects to simplify processes and/or supercharge end results.
Substrate is carving out a unique space in the crowded field of artificial intelligence.
What sets it apart is its patented, biologically-inspired learning technology, the brainchild of co-founder and CTO Worth.
With a diverse background spanning aerospace engineering to investment banking, Worth brings 15 years of application development experience to the table.
His technological innovations are backed by rigorous research, conducted in partnership with the esteemed Rensselaer Polytechnic Institute of New York.
The result is a patented form of hierarchical reinforcement learning. In simpler terms, this technology organises decision-making rules based on observed behaviour patterns.
It’s further enhanced by a neuroscience-inspired algorithm that uses emotional cues to build effective strategies.
His technology enables Substrate AI to operate with 98% less data than typical AI solutions, making it nimble and adaptable.
This is a boon for small and medium-sized enterprises, offering them the kind of AI-driven solutions usually reserved for larger corporations.
The AI has already found practical applications in sectors as varied as dairy farming and renewable energies.
Substrate AI listed on the Aquis Growth Market last week, which will undoubtedly lift its profile, particularly with London’s investment community.
It has already garnered attention for its robust growth, with a 787% increase in turnover from €450,000 to €4.76 million between 2019 and 2022.
With a compound annual growth rate (CAGR) of 106% over five years, the company is well-positioned to attract investors looking for high-growth opportunities in the AI sector.
The latest acquisition will take turnover to an annualised €10 million.
Substrate AI is not just focused on innovation; it’s equally committed to financial performance, as evidenced by its adherence to the “Rule of 40” – as noted in the firm’s corporate presentation.
This benchmark is often used in the software as a service (SaaS) industry to evaluate the health of a company. It suggests that a well-run SaaS firm should have a combined growth rate and EBITDA margin that exceeds 40%.
For Substrate AI, this rule is more than just a guideline; it’s a performance metric that the company proudly meets.
According to the company’s data, it either grows above 40% without a positive EBITDA or the sum of its growth and EBITDA margin sits above the 40% mark.
This is a strong indicator of the business’s balanced focus on both growth and profitability, a rare feat in an industry often characterised by high growth but low profitability or vice versa.
Substrate has a diversified portfolio of revenue-generating businesses in fintech, energy, agri-tech, human resources, and health.
For instance, Boalvet, an agri-tech startup, aims to improve farm profitability by 30% through its SaaS system.
Similarly, Ifit Solutions in the human resources sector offers a SaaS system for talent detection and promotion.
Over the next year, investors can expect several key developments from Substrate AI.
Firstly, the company plans to continue its acquisition spree, targeting undervalued companies with high growth potential.
At the same time, Substrate aims to expand its patented AI technology into new sectors, including legal tech and marketing.
Finally, the company is expected to announce partnerships with major players in various industries, further solidifying its market position.
While Substrate has a compelling business model and robust growth, it is not without challenges.
The AI sector is highly competitive, with many companies vying for market share.
Moreover, the regulatory landscape for AI is still evolving, posing potential risks for the company.
However, Substrate, under the leadership of Garcia and Worth, has carved a unique niche for itself in the crowded AI market.
Its focus on real-world applications, revenue-generating businesses, and patented technology sets it apart from competitors.
Now with a London listing and a strong growth trajectory, Substrate AI is a company to watch in the coming months.
And perhaps we’ll look back and see this as the pivotal moment for the new Berkshire Hathaway.
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