What Do VCs Look For In An AI (Artificial Intelligence) Deal? Posted on : Aug 03 - 2019

Recently SoftBank Group launched its latest fund, called Vision Fund 2, which has $108 billion in assets. The focus: It’s primarily on making investments in AI (Artificial Intelligence). No doubt, the fund will have a huge impact on the industry.

But of course, VCs are not the only ones ramping up their investments. So are mega tech companies. For example, Microsoft has announced a $1 billion equity stake in OpenAI (here’s a post I wrote for Forbes.com on the deal).

The irony is that—until a decade ago—AI was mostly a backwater, which had suffered several winters.  But with the surge in Big Data, new innovations in academic research and the improvements in GPUs, the technology has become a real force.

“I’m convinced that the current AI revolution will be the largest technology trend driving innovation in enterprise software over the next decade,” said Jeremy Kaufmann, who is a Principal at ScaleVP. “The magnitude of this trend will be at least as large as what we observed with cloud software overtaking on-prem software over the last two decades, which created over 200 billion dollars in value. While certain subfields like autonomous driving may be overhyped with irrational expectations on timing, I would argue that progress in the discipline has actually exceeded expectations since the deep learning revolution in 2012.”

Given all this, there are many AI startups springing up to capitalize on the megatrend. So then what are some of the factors to improve the odds of getting funding?

Well, in the AI wave, things may be different from what we saw with the cloud revolution.

“Unlike the shift from on-prem software to SaaS, though, progress in AI will not rewrite every business application,” said Kaufmann. “For example, SaaS companies like Salesforce and Workday were able to get big by fundamentally eating old-school on-prem vendors like Oracle and ADP. In this AI revolution, however, do not expect a new startup to displace an incumbent by offering an ‘AI-first’ version of Salesforce or Workday, as AI does not typically replace a core business system of record. Rather, the most logical area for AI to have an impact in the world of enterprise software will be to sit on top of multiple systems of record where it can act as a system of prediction. I am excited about conversations around the likelihood of sales conversion, the most effective marketing channels, the probability that a given credit card transaction is fraudulent, and whether a particular website visitor might be a malicious bot.” View More