According to the PwC report, the total funds volume allocated to artificial intelligence over the period of the first three months of 2018 is estimated at $1.9 bn. What makes AI so attractive to investors and what should be taken into account before parking money in projects?
This year is heralded by the record in AI financing: compared to 2017, Q1 2018 witnessed the growth by 69% (as PwC calculated). The global heavyweights Apple, Microsoft, Facebook, Amazon, and Alphabet also show interest in this technology. It’s common for the tech giants to buy interesting startups or back up unusual AI-powered products (for example, Intel purchased a Vertex.AI startup that develops deep learning systems).
So, why is artificial intelligence considered to be promising and what benefits are investors likely to gain?
AI-centric solutions grew popular due to the technological advance. It is currently cheaper and simpler to integrate artificial intelligence in various spheres. The quick development of artificial intelligence is due to the following:
- data proliferation. Massive amounts of data are being generated with the rise of digital services and IoT;
- faster hardware. Processing chips that enable machine learning computing are becoming more powerful at a reasonable price.
- better machine learning algorithms. Open-source frameworks for machine learning are available to developers across the world. This accelerates the development of advanced use cases.
Artificial intelligence may help businesses draw up exact development plans based on machine analysis. Marketers, brand holders, and ad makers also leverage AI. This technology assists in prognostics, targeting, Big Data processing as well as customer service automation. Thus, AI offers a wide scope of solutions in many spheres (medicine, e-commerce, power industry).
Portrait of a successful AI startup
Data aggregation and analysis are no longer enough to build a long-term competitive advantage in AI. AI-enabled solutions can attract investments possessing the following drivers:
- A startup offers a fully-integrated, full-stack solution thoroughly elaborated each development stage.
- Developers have an experience in machine learning, and a team consists of industry experts. For example, they worked in healthcare (in case a project is related to medicine).
- A unique and one-of-a-kind in-house data asset.
- AI and ML are not only optimization elements but also underlying technologies of a startup solution.
First steps of AI startup investing
Investing in early-stage startups is the most beneficial way since this would bring more profit in the future (on condition that the project continues developing). Therefore, inverting should be properly worked out and well-planned.
Before spending a certain amount of money, weigh all pros and cons, learn the information about a startup, its team, and plans for the fulfillment of their AI-fueled ideas.
5 simple tips for investors
- Choose an area you already invested in. Then, it’s not so difficult to assess the project feasibility and applicability.
- Before parking money, think whether you would like to take part in strategy and development planning.
- Capital investment is a reasonable decision if preceded by a relevant assessment. In other words, you should analyze the company prospects and make up a list of essential criteria. Contact investor community and learn the experience and case studies of other people in choosing startups for investing.
- Do not take the information provided by the startup as a single source to learn from. Before investing, it’s better to carry out research in the relevant niche, its potential, and applicability.
- Apply to a skillful lawyer. They surely have worked with securities and early-stage projects financing. If you want your interests to be guarded to the fullest, it’s necessary to use legal services and take advice on important issues.
Brian Roberts, a successful American investor whose 9/10 companies reached $1 bn, points out that a team and its head are to pay attention at first of all. The expert also advises to assess professionalism, intelligence, originality, and also modesty of people working on a product.
The advantage of investing in AI startup lies in the possibility to distribute your funds in several agreements and mitigate risks in case one of the projects fails. Sure, investing in startups even in the most prospective industry (like artificial intelligence) is risky. It’s better to allocate an amount of funds that wouldn’t become a disastrous problem if they get lost (essential information particularly to beginning investors). Be ready that investments in startups may be illiquid for a couple of years.
There is no ultimate tip. The point is that investors should heed the lesson of fellows but rely on intuition and make a personal judgment of a company. Calculate risks, consider nuances, and keep track of topical news.
It would be also beneficial to attend a conference or an exhibition and meet startup representatives showcasing own solutions. Such events give an opportunity to get acquainted with a team, discuss the nuances of a project, consider other offers, have a talk with veteran investors and share opinions.
You'll know more than your colleagues and business rivals.