The AI paradox: Overhyped in the short term, underinvested in the long term

Many businesses have rushed to integrate AI, driven by promises of automation, hyper-personalisation, and cost savings, and many startups have worked hard to develop solutions in response to business pain points. 

But ultimately, with the exception of a few high-impact use cases, we don't realistically know to what extent business customers will extend their contracts across the incoming months and years or how many early adopters will shift their allegiances to the next AI product on offer.

Oxx is a venture capital firm founded in 2017 by Richard Anton and Mikael Johnsson. It aims to become Europe's leading investor in companies developing profound B2B software products. I sat down with Johnsson to learn more.

According to Johnsson, AI investment is overhyped in the short term but underinvested in the long term. 

"This pattern is common with any major technological shift. The initial enthusiasm leads to overestimating the short-term impact, while long-term consequences are often underestimated."

Oxx has invested in various B2B SaaS companies including Kodiak Hub, Funnel, Gravitee, and Apica.

The firm focuses on founders with deep domain expertise and access to unique data that can support AI-driven business differentiation.

 Johnsson shared:

"On average, our founders tend to be older and more experienced than those typically backed by venture funds.

Many are second or third-time entrepreneurs, usually in their mid-30s to early 50s. While we do make exceptions, most of our founders have spent 10 to 20 years in their industries.

They're approaching problems from a customer or industry-insider perspective, rather than as technology-first evangelists."

In December 2023, Oxx closed its second fund generation, raising $190 million to continue supporting European B2B SaaS scaleups.

European enterprises are over-reliant on US software

According to Johnsson, at the time of the firm's founding in 2017, most investors focused on digital consumer businesses, and there was relatively little interest in funding and scaling SaaS companies.

Then, with the onset of COVID-19 and its aftermath, demand for B2B SaaS solutions surged, and suddenly, everyone wanted to be a SaaS investor. 

"Now, we see the landscape shifting back, with fewer investors specialising in this space. However, we remain deeply committed because we see a fundamental issue: Europe is home to a large share of the world's Fortune 1000 companies—many of them global leaders in their niches—yet the software driving their digital transformation is primarily American. That doesn't make sense to us."

Data infrastructure is the key to unlocking AI's full potential

Johnsson believes that the trend of dedicated AI funds and investors treating AI as a standalone investment theme is a passing phase. 

"AI represents a fundamental shift in how software is built and deployed, much like the transition from on-premises servers to cloud computing or the move from perpetual software licenses to subscription-based models."

However, we don't see AI as a niche investment category—it will be embedded in nearly all software companies."

For Johnsson, the real opportunity lies in understanding how AI can be leveraged to build differentiated businesses.

Oxx is particularly excited about the foundational work required to make AI truly valuable. One critical challenge is the data pipeline.

"With the rise of cloud and SaaS, enterprise data is now scattered across numerous isolated applications. This creates a need for what we call a "data refinery"—solutions that aggregate, transform, and harmonise data into a unified business view.

We've invested in companies tackling this issue in marketing, HR, and IT operations, and we're now exploring cybersecurity. Before any meaningful AI-driven innovation can happen, businesses need well-structured, accessible data. That's why we see data infrastructure as a crucial area of investment."

Johnsson admits that he and his co-founder Richard Lu have seen multiple market cycles. He contends that once interest rates stabilise and inflation continues to decline, we will see a massive uptick in M&A activity. 

"That will be the catalyst to restart the investment cycle.

There is significant pent-up demand, and private equity firms have enormous amounts of capital earmarked for consolidation. We're on the cusp of seeing a surge in M & A, which will help unfreeze the market and fuel the next wave of investment."

He asserts that Many of these deals will be tech-driven, and we'll see a lot of "acquihires", where companies are bought primarily for their talent rather than their products.

"Many AI startups are composed of brilliant minds, but they don't necessarily have the scale to be standalone businesses. In the right environment, these teams could be incredibly valuable."

The B2B AI hype cycle is in full swing, but long-term success will depend on solving real business challenges, particularly in data infrastructure. Oxx remains committed to backing experienced founders who can build AI-driven differentiation.