State of AI Venture Landscape & Investment Opportunities
Recording + Recap of our #NYTechWeek Event with 1000 Participants
Artificial intelligence companies raised $25B in the first half of 2023, representing 18% of global funding. The time to invest in AI is ripe, yet determining the right deal or fund in this massive landscape can be a challenge.
On October 18th, we hosted a live event at NYC Tech Week on the State of AI Venture Landscape & Investment Opportunities. At the event, George Bandarian, Founder and General Partner of Untapped Ventures, shared exclusive insights on the top AI investment trends, challenges, and opportunities. At the event, investors walked away with the tools to understand how to source AI startups, conduct due diligence, and evaluate opportunities to maximize AI investments.
Intro to AI Venture Landscape
At Untapped Ventures, we prioritize emerging technology and investments that aim to uplift humanity. In the past, we have hosted events like the AI Launchpad Workshop and AI Pitchfest to democratize access to the complexities of the AI ecosystem for CEOs.
Artificial intelligence tools are a proven means to significantly boost productivity for investors. Generative AI alone has the potential to automate tasks that consume a majority of employees' time, potentially freeing up 60-70% of bandwidth. This not only leads to increased revenue through enhanced efficiency, but also substantial cost savings.
Despite some skepticism about AI's longevity, the data tells a different story. ChatGPT garnered over 100 million users within just two months of its launch, surpassing any other product in terms of rapid user adoption. Over 65% of the startups in Y Combinator's past summer 2023 cohort focused on developing AI-driven tools. If entrepreneurs today aren’t innovating new products with AI tools, then they are the ones creating them.
Over the past year, NVIDIA, a leading chip maker turned AI powerhouse, has seen its stock surge by over 220%. Similarly, Microsoft's strategic investment in AI has seen major stock gains of over 46%, more than double the growth of the S&P 500 in the same period.
Venture capital firms are closely monitoring companies that focus on advancing artificial intelligence. According to a Pitchbook survey, over a third of venture capitalists see AI as the sector with the highest growth potential. In the past year, early-stage generative AI companies have seen a notable 16% increase in median pre-money valuations.
How to Invest in AI
While some might think that investing in AI might be out of reach, the opportunity to be a part of the AI venture landscape is a lot more feasible than you might have initially imagined possible. 78% of startups that raised funds in H1 2023 are early-stage — or haven’t raised any equity funding. That means that there are endless opportunities to get started. Additionally, even small investments can eventually pay massive dividends, but knowing where to begin with AI can be a huge challenge.
Investors should first look for companies that are built on AI, rather than powered by AI. There is a striking difference between the two. Companies that are AI-enabled might have used AI in early development to expedite tedious processes and perhaps protect bottom-line. Investors should be cautious about these companies that do not actually create AI products, but in reality, just market themselves as AI-powered to fit the cultural zeitgeist. Companies that are built on AI have a core product that uses AI and generates profits by selling it. These products use AI to solve relevant problems faced by customers and make life easier.
There are four layers of value creation when it comes to investing in AI. The first are AI applications, which are the end-products. For example, a cybersecurity product that uses AI to identify patterns of malicious behavior would be considered an AI application. Other areas to consider investing include AI infrastructure, models, and compute. AI infrastructure would be the tools that engineers rely on to create AI products. Software tools, frameworks, and libraries like TensorFlow, PyTorch, or Keras could be part of the infrastructure to facilitate model development and training. AI models enable magical transformations or predictions using inputs, like what we see with ChatGPT. Compute includes all the hardware for AI products, such as GPUs.
When considering investing in an AI company, one should determine the product’s capabilities, its competitive advantage, and its necessity. Firstly, investors should get an idea of what type of AI product they are investing in, whether it might be end-products, infrastructure, models, or hardware. Next, we recommend identifying the company’s competitive advantages. Some of these discussions might include SWOT analyses, or examining a company’s go-to-market. Finally, companies worth your time and money shouldn’t just be nice-to-have, but provide a must-have capability. A mission-critical company is one that prioritizes reliability, integrates seamlessly with other systems, and adaptively learns over time. Finally, investors must also consider the elements of technical and business due diligence. Due diligence can involve close scrutiny of business models, competency, and scalability. Investors should ensure that they have enough time and information to conduct a thorough analysis of the company’s business projections and momentum.
How to Source AI Deals
After having a sense of what types of companies you are looking to invest in, it’s important to narrow down your investment sourcing channels.
Angel groups can provide valuable insights and potential leads that can provide promising outcomes. Joining angel investor groups focused on AI deals provide access to a network of like-minded investors. These groups often host pitch events, where startups present their ideas, offering opportunities for early-stage investments and AI deals.
Another way to identify a strong investment channel could be by honing in on a sourcing strategy for AI deals. Developing a systematic approach to identify and evaluate AI investment opportunities can help you narrow your target outcomes. This could involve attending industry conferences, networking with entrepreneurs and fellow investors, and leveraging online platforms specialized in connecting investors with startups.
Finally, we recommend investing in AI funds. Consider allocating capital to venture funds specializing in AI. These AI funds have expertise in the AI landscape and can provide exposure to a diversified portfolio of startups in the field.
Remember, diversifying across these channels can increase the likelihood of discovering promising AI investment opportunities. Each avenue brings its own unique advantages and networking opportunities, contributing to a well-rounded investment strategy. Different AI funds, especially early-staged focused ones, can give you instant access to learn the space, access dealflow, and buy coinvestment rights or opportunities.
AI Investment Highlights
As believers in next-generation technology that uplifts humanity, we at Untapped Ventures are committed to finding the best AI opportunities that leave a tangible impact in moving society forward. Here are just a few of the AI-focused companies we have invested in over the past year. ‘
There has yet to be a non-surgically invasive procedure to prevent or cure brain cancers, strokes, and beyond.
Openwater is on a mission to revolutionize patient care through a new generation of portable, wearable medical imaging technology and therapeutic devices. Their innovative breakthroughs in novel lasers, opto-electronic and holographic systems aim to deliver portable systems that rival the resolution and image quality of multi-million dollar medical imaging scanners.
Openwater’s novel technology could deliver real-time, accurate information to first responders, enabling critical, time-sensitive patient care for Stroke and Traumatic Brain Injuries. We’re thrilled to join Openwater’s pre-Series A funding, alongside Khosla Ventures.
Data centers currently consume 1.3% of the world’s total energy, and this is expected to quadruple by 2030 with the growth in AI. The escalating costs and energy consumption of AI inference, particularly as its adoption grows, are unsustainable.
Lemurian Labs is a company that tackles AI’s compute capacity limitations by pioneering computing solutions of remarkable performance that redefine the boundaries of processing power, democratizing AI for broader accessibility..
Lemurian Labs is on a mission to enable the next generation of efficient AI workloads, without compromising cost or efficiency.
Untapped Ventures participated in a $9 million seed round alongside Oval Park Capital, Good Growth Capital, Raptor Group AB, Alumni Ventures, Plug and Play Tech Center/Ventures, Silicon Catalyst Angels, Blue Lake Capital, Futureland Ventures, AI Operators Fund, Tola Capital, and others.
Making sense of clinical data with current methods is cumbersome and inefficient. Deloitte reports that one of the top AI concerns echoed by 28% of healthcare providers was managing patient risks and ensuring privacy.
ScienceIO is on a mission to change the way language models decipher healthcare data, without sacrificing patient privacy and care, by seamlessly transforming medical text into enriched data.
ScienceIO's AI platform empowers clinicians to more effectively capture large amounts of unstandardized patient data into high-quality, computable information. By extracting crucial insights from unstructured and intricate medical records, ScienceIO ensures that key patient information becomes easily accessible and actionable for providers.
We are thrilled to contribute to their Series A extension and welcome ScienceIO into the Untapped Ventures portfolio.
Next Steps
If you missed it, here is the chance to catch up by checking out the recording here.
You can also gain access to the complete presentation deck and a cheat sheet as a bonus once you’ve completed the feedback form.
If you’re beefing up your investments in AI and/or use of AI in your company and would like to chat, drop us a note at hello@untapped.ventures and we'll get right back to you!
If you’re a founder building in AI, we’d love to hear from you! Pitch us here.