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Harish is providing the Amazon Prime fulfillment experience to everyone else through a combination of AI and an asset-light network of warehouses across the United States.

Alex is automating workflows for the world’s largest enterprises by using process mining to build the connective tissue for businesses.

Mayan is delivering Autonomous IT to the largest companies in the world through systems of intelligence.

Carsten built one of the largest commerce platforms in the world, which powers enterprise merchants and retailers across the globe and now serves as the SAP commerce engine.

Soups is stopping financial crime in its tracks by building the first end-to-end platform for fraud, risk, and compliance.

Adam is enabling restaurant owners to take back their customer relationships by digitizing their entire online and offline operations in a single platform.

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Activant is a research-led global investment firm that partners with high-growth companies.

We partner with founders who have won their initial battles and are ready for the next challenge.

We typically invest when two things come together. First, the company has the potential to achieve escape velocity and transform an entire industry. Second, we believe the founders can lead the company through hyper growth, and our support can significantly increase the probability of this success. 

The critical time window to escape competitors and transform an industry is not open for long.

That’s why after we invest, the real work begins.

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A Florida native, Teddy was captivated by the interplay of business, history, and emerging technology. He earned his degree in History with an Economics minor at Georgetown University, where his curiosity for automation and AI led him to co-found several business ventures including Secretary AI, an iMessage-based LLM assistant that streamlines scheduling and reminders, and OMatic, an offer memorandum automation platform built for boutique real estate private equity firms.

Teddy previously interned at Activant Capital for two years before joining the full-time investment team in 2025. At Activant, he focuses on AI-driven software and automation platforms, and is eager to support founders building the next generation of products. 

Outside the office, you’ll catch Teddy testing new AI tools, building new products with his friends, or scouting New York’s latest restaurant openings.

We are hardly the first to claim a new technology is poised to upend work as we know it. With every wave of innovation comes a chorus of such pronouncements, many of which turn out to be hyperbole. Technology may make our jobs easier, but most of the time, the core of what we do remains fundamentally the same. But spend five minutes exploring ChatGPT, or any comparable Large Language Model (LLM), and it’s clear that this wave is different.

The reason is simple. Most technologies are simply tools that help us accomplish tasks and be more productive. AI, on the other hand, can think – or at least provide the appearance of thinking. It’s like having another knowledge worker on the payroll (for a fraction of the cost).

As we explore the world of AI Agents and the potential to shape how we work, we will share three perspectives that we hold at Activant and illustrate what we think is possible through a hypothetical example.

Activant Perspective 1: LLM-enabled software will autonomously accomplish highly complex tasks with increasingly less guidance.

This is the beauty (and threat) of LLMs: they can do work we thought would long be the purview of humans. It’s unsurprising, therefore, that many people worry their job will soon be automated away by AI. In the short term, this will lead to dislocation. But technological revolutions are never zero-sum; in fact, they have always been accretive. As workers adapt, they become more productive, and the companies they work for can do more with less. Some stop there, but most businesses opt to invest the gains back into their infrastructure and people. In the end, revenues go up, companies do better, and the economy grows.

That said, we are still in the very early days of this cycle – and the early days of the technology itself.

Activant Perspective 2: LLMs alone are not enough to achieve Perspective 1.

An LLM can’t complete most tasks on its own. It is merely a dense set of attention networks: essentially, statistics on a massive scale. Yes, they can engage in human-like “thought,” but to generate real value from any of these models, a human would have to integrate them into actual workflows and make use of their decision-making competence.

For example, imagine that you hired workers to lay bricks. You could lead them to a stack of bricks and explain where and how you want them laid. They could perfectly understand your instructions, but understanding alone isn’t enough because the workers would also need to be able to lay bricks.

Bricklayers need to have more than just cognition. They need to have arms, legs, and physical strength. Furthermore, they need a memory to recall how you wanted each of the bricks to be arranged, and a way of correcting any errors so they don’t cause the eventual structure to fail.

If LLMs are to extend beyond mere Q&A they need (1) a suite of tools to impact the real world, (2) memory repositories to remember what actions they’ve taken, and (3) auto-critique algorithms to error correct along the way.

When all these components come together, an “Agent” is born.

 An AI Agent is orchestration software that combines an LLM with memory, tools, and auto-critique mechanisms.

 An AI Agent is a highly advanced bot that can complete work that has been assigned to it in natural language.

Though still in their infancy, Agents are poised to fundamentally reshape the way we work. They will become natural extensions of our organizations and complete day-to-day tasks like newly hired employees. They will help us get work done, and even collaborate with others on our behalf. Eventually, they will be able to work together, breaking down tasks into atoms of work able to be handled by a full “office” of Agents, some of which orchestrate, while others specialize.

That is why this wave is different. Working together, Agents will be able to handle increasingly complex tasks, replacing knowledge workers in a variety of fields. As they do, what it means to work – and to lead – will change dramatically, as both will increasingly depend on a mix of human and human-like capital.

Activant Perspective 3: Agent teaming is the future of autonomously completed, complex work – 

Agent ecosystems have four key components:

providing “conscious thought” within AI agents

external APIs facilitating task completion and agent interaction with the real world

 data storage mechanisms that retain and recall information

the ability to correct mistakes when completing tasks

 – agents can effectively “team” and autonomously complete complex work. The exhibit below describes the individual components of agent ecosystems, and we will attempt to bring things to life using a hypothetical example. Let’s consider the job of an Activant Investment Analyst!

Re-imagining the role of an Activant Investment Analyst

Among many other things, we often rely on our analysts to create market maps, which requires them to:

Find companies that exist in that industry,

Compare these companies quantitatively and qualitatively, and

Place them on a two-dimensional grid according to this comparison.

Until recently, this was almost inconceivable as a task for machines but let’s explore how we might put our “Agent Analyst” to use.

1. Understanding the industry (and task): Large Language Models

For our Agent Analyst to understand the task at hand, it needs to comprehend instructions in natural language. While LLMs provide that ability, requests literally come in many different shapes and sizes. To compare foundation models and model providers, one would likely consider the number of parameters in a model, whether it is open-source or closed-source, and the provider modality. One might also consider whether it includes “Fine-Tuning-as-a-Service” (FTaaS), the process of training a pre-trained model on subject-matter-specific data to produce a model that performs better in specific use cases.

When comparing foundation models, the number of parameters in a model is often a good approximation of output quality. As a rule of thumb, the more parameters a foundation model has, the better its performance across different benchmarks such as reasoning, web browsing, or even game 

 Although fine-tuning a model can boost its performance on a particular task, larger models with more parameters tend to have better generalization skills, making them more useful.

As seen in the exhibit on the following page, model sizes are increasing exponentially while model performance is also increasing, but not at the same rate.

At the heart of any LLM lies its architecture: a blueprint dictating how various attention heads and layers are organized. There are also "weights,” which are numeric values assigned to parameters in the neural network, refined and adjusted through training to enhance performance. Training involves feeding data into the model, allowing it to learn pattern matchings, and then adjusting its weights based on prediction accuracy measured via various benchmarks. It's through this process that the model obtains its ability to understand and generate context dependent and human-like text.

, openly share their architecture, weights, and sometimes even their training methodologies. This approach not only reveals the intricacies of their design but also democratizes access.

Conversely, some entities opt for a more guarded approach. Closed-source models, such as GPT-4 by OpenAI, protect the details of their architecture, weights, or training processes, presenting them as a kind of “black box.” Instead of allowing direct model access, they employ APIs as intermediaries, thereby controlling and often monetizing the interaction between the end user and the model.

Since this article’s initial publication, the AI landscape has evolved significantly, and we have updated our Activant Market Map of foundational models. Some changes are significant. For example, OpenAI was previously placed on the open-source side, but the company has since focused on closed-source offerings and has deprecated many of its former open-source models.

Provider modality relates to the data type a provider offers models for. This includes various transformations such as text-to-video, text-to-text, text-to-image, and image-to-text, among others. Companies that operate in just one domain are labelled as “uni-modal”; by contrast, “multi-modal” companies provide models spanning multiple domains. As AI Agents continue to evolve, we expect a growing emphasis on modality in foundation models (more than just LLMs).

Today, OpenAI, Google, and Anthropic dominate the industry, but the next few years will see considerable competition as investment in R&D increases in a proverbial arms race. Given this uncertainty – and the promise of better models always on the horizon – it’s hard to imagine agents relying on a single provider. From an investment perspective, backing one LLM provider is essentially a vote of confidence in its R&D team, but past performance is not necessarily indicative of future results.

Having understood the industry and the task, the Agent Analyst now needs the ability to search for companies. In other words, the Agent Analyst needs a tool.

Simply put, tools are snippets of code that LLMs can use to create, modify, and utilize external resources to execute tasks they couldn’t otherwise complete on their own.

Most tools are problem specific. In this case, all the Agent Analyst needs is a connection to Google or SerpAPI, a prominent wrapper for Google’s Search API. Unsurprisingly, other tasks will require different tools. Game this out, and you quickly arrive at the need for toolkits and tool aggregators. As tasks become more complex, agents will rely on not one but a variety of tools to accomplish a single objective. Through tool aggregators, Agents will be able to access the resources they need programmatically and as those needs arise.

Single tools refer to companies or services that specialize in just one function, such as searching the internet, booking a flight, or creating audio with a realistic voice. While these offerings do have certain strengths, integrating them into a toolbox, and thus into agents, is often cumbersome. Agent libraries provide the orchestration framework that combines all the components in the Agent ecosystem, and in some prominent examples toolboxes need to be set up before an Agent itself is even initialized. This means that if there's a need to integrate additional tools later, the agent would have to be initialized all over again. Given these considerations, embedding single tools into an Agent's workflow can be quite labor-intensive and time-consuming.

By contrast, tool aggregators offer Toolboxes-as-a-Service (TaaS). Theoretically, aggregators can compile an infinite number of tools and distribute them via a single, unified API. In practice, they typically provide tools that have been identified by an Agent as necessary to complete a given task. If, however, an Agent requires additional tools, it can access them without restarting.

A subset of tool aggregators, LCNC companies could provision tools and/or provide tool-building functionality for 

 As long as they offer an API, agents can leverage these solutions as they do tool aggregators, integrating (and even custom-building) tools into their workflows on the fly.

Many LCNC platforms have existed prior to the advent of LLMs and already have large libraries of powerful, ready-built tools to draw upon. Several companies, including 

, have begun offering Agents-as-a-Service (AaaS), using these libraries to jump ahead of competitors, many of whom are starting from scratch. Others may choose to offer APIs to facilitate quick adoption within the agent ecosystem and more reliably maintain their market share.

Because of their ease of integration and ease of use, we believe tool aggregators and API-based LCNC platforms are the best positioned to take advantage of this new agent ecosystem. As platforms like Llama Index and Relevance AI grow, Agents will be able to dynamically access a vast library of toolsets without needing to update their structure or code, increasing both their functionality and value.

As our Agent Analyst has progressed, it has gained the capability to discern tasks and search for companies. However, identifying a company means nothing if an Agent can’t remember it for later use. Agents require a dedicated memory component that can store company names and their associated descriptions.

Over the years, the software industry has seen a multitude of data-structure innovations, from traditional SQL-based relational tables to modern streaming services like Kafka. Yet, to truly grasp the intricacies of Agent development and the depth of virtual cognition, it's helpful to draw parallels with human memory.

At a high level, human memory is split into three core categories: sensory memory, short-term (or working) memory, and long-term memory.

In humans, sensory memory can be thought of as the direct inputs from our various senses of taste, smell, sight, touch, and hearing. These are perceived subconsciously, processed, and then filtered for relevance.

sensory memory captures the responses generated from the tools AI Agents utilize.

 Human neural frameworks efficiently filter out redundant and useless sensory data, elevating only important information for conscious processing. The sensory memory of an Agent operates on similar principles, 

sifting through vast data while retaining only what's significant.

Over time, we believe that sensory memory will include the ingestion of many different data types,

 from unstructured data files (such as DOCX, PDF, EPUB, or recordings) to semi-structured datasets (such as messages and CRM data).

Having processed inputs on the subconscious level, Agents are left with the inputs that require conscious thought. In humans, conscious thoughts reside in working or short-term memory. When we actively think about a topic, we do not consciously remember the context for the thought, but it is nevertheless recalled. In fact, our short-term memory is believed to have the capacity of about seven items

 and lasts for 20-30 seconds. For Agents, using the context windows defined by LLMs to store short-term memory is the default solution. As context windows increase in length and new techniques for prompt engineering solve existing constraints, the context window will be an even more effective location for short-term memory.

In the context of our Agent Analyst, short-term memory can be thought of as remembering the larger task at hand (i.e., creating a market map) when deciding what smaller task (i.e., finding a company) needs to be accomplished next. In practice, this information will largely live inside the context window of the LLM API calls. While it’s essential for the Agent to complete a task, we believe that there is little opportunity for investment in short-term memory due to the limited additional infrastructure required to build it.

Once subconscious and conscious memory is in place, an Agent Analyst will need some way of saving information for longer periods. This is where long-term memory comes into play.

In humans, long-term memory is finite due to the limited capacity of the brain. As a result, we have developed two primary mechanisms to retain knowledge: repetition and adrenaline. Agents lack this capacity constraint. Instead, they are limited by the amount of memory that they could conceivably access. For example, if our Agent Analyst was integrated into our drive and needed to search for the PowerPoint example of our Market Map, the size of the context window would limit the number of folders that it could select from in its search.

In our view, connections to long-term memory repositories are no different than tools, in that they are blocks of code that can be executed and return a response.

Over the next decade, we believe that the entire ecosystem of data management will grow even faster than it has historically because of increased Agent data utilization. Agents will be able to build pipelines from company data, leverage this data in their own processes, and integrate outside data into existing workflows. As the Agent ecosystem grows, the demand for data stores will increase even more rapidly, making the volumes of unstructured company data – which today sits untouched – significantly more valuable.

We’ve listed a handful of data structures and the impact we anticipate from Agents below:

Our Agent Analyst has successfully understood the industry, used a search tool to find all the companies within it, and saved them in a database for future output. As a final step, we need the Agent to place the logos of each of those companies onto an Activant Market Map, fully understanding the significance of each company’s position.

Plotting logos, of course, is the easy part of the challenge; understanding where to place a logo in a subjective two-dimensional plane is the truly complex task. It requires iterations, constant comparisons to other companies, and perhaps even outside input from the Activant team. Therefore, the Agent needs a mechanism for critiquing itself. We call this auto-critique.

While we foresee potential challenges like defensibility, this remains a vital component of the ecosystem with several approaches underway: a) prompt engineering, b) human-in-the-loop, and c) auto-critique.

Prompt engineering is the process of forming and refining natural language statements and questions to achieve an optimal outcome from an LLM.

In practice, LLMs are only capable of comprehending and responding to inputs that fit within a defined context window. For example, GPT-4’s context window is about eight thousand tokens, meaning only about seven thousand words can be provided as context at any one 

In our view, prompt engineering is likely a temporary solution, and one we expect the industry to shift away from as LLMs improve in terms of task comprehension and context window size (though the timeline for this shift remains uncertain). Meanwhile, existing businesses in this domain have a chance to pivot their business models, leveraging their current distribution to tap into emerging opportunities.

Human-in-the-loop refers to the use of humans to validate that Agents are accurately processing and reasoning through tasks. It is just what it sounds like: leveraging humans to correct or modify the reasoning of LLMs. Currently, developers use this method when building Agents, as they want visibility into their inner workings. Because it requires that people scale linearly with computing resources, it will likely be unsustainable in the long term.

Auto-critique refers to the autonomous use of LLMs to check and modify Agent reasoning about a task. This is an autonomous process that allows Agents to improve and amend their own output by reflecting on past responses and errors, all without human intervention. To do this, Agents draw on new input from a variety of sources, including external tools, other Agents, affiliated LLMs, and heuristic functions. Once they arrive at a satisfactory result (governed by predefined metrics for evaluating self-reasoning), a stop condition is granted, allowing Agents to finalize their output.

Teaming: The Rise of the Planet of the Multi-Agent Systems

The information contained herein is provided for informational purposes only and should not be construed as investment advice. The opinions, views, forecasts, performance, estimates, etc. expressed herein are subject to change without notice. Certain statements contained herein reflect the subjective views and opinions of Activant. Past performance is not indicative of future results. No representation is made that any investment will or is likely to achieve its objectives. All investments involve risk and may result in loss. This newsletter does not constitute an offer to sell or a solicitation of an offer to buy any security. Activant does not provide tax or legal advice and you are encouraged to seek the advice of a tax or legal professional regarding your individual circumstances.

This content may not under any circumstances be relied upon when making a decision to invest in any fund or investment, including those managed by Activant. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by Activant. While taken from sources believed to be reliable, Activant has not independently verified such information and makes no representations about the current or enduring accuracy of the information or its appropriateness for a given situation.

Activant does not solicit or make its services available to the public. The content provided herein may include information regarding past and/or present portfolio companies or investments managed by Activant, its affiliates and/or personnel. References to specific companies are for illustrative purposes only and do not necessarily reflect Activant investments. It should not be assumed that investments made in the future will have similar characteristics. Please see “full list of investments” at https://activantcapital.com/companies/ for a full list of investments. Any portfolio companies discussed herein should not be assumed to have been profitable. Certain information herein constitutes “forward-looking statements.” All forward-looking statements represent only the intent and belief of Activant as of the date such statements were made. None of Activant or any of its affiliates (i) assumes any responsibility for the accuracy and completeness of any forward-looking statements or (ii) undertakes any obligation to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in their expectation with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking statements.

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