To say that artificial intelligence (AI) has boomed in 2023 is an understatement. Although the focus has been on ChatGPT, DALL-E, and autonomous driving, there is one particular use case for AI that has yet to be adopted by the mainstream: capital raising.
Today, most investment decisions in technology companies still rely on PDFs, traditional narratives, and fishbowl processes, making the financial sector an extreme laggard to the Big Data innovation that found in most large technology companies. Even though some of the most valuable technology companies have reaped the rewards of venture capital investments in recent decades, the current structure remains inaccessible to thousands of founders and companies.
More data-driven decisions
We need more data-driven investment decisions and lower barriers to entry for entrepreneurs seeking financing. By democratizing how to grow your business smartly and raise the right kind of money, at the right time, we will contribute to a more diverse innovation ecosystem.
In order to disrupt the current fundraising process, improve diversity, and pave the way for the next generation of technology companies, we all need to ask ourselves if we can afford not to adopt AI and a data-driven decision-making framework.
According to Dealroom data, less than 10% of all venture capital investments in Europe went to women-led companies in 2022. The funding divide and lack of diversity in securing funding capital has been widely discussed, but remains a pressing issue if we are to harness the world’s true levels of innovation. Traditionally, a startup’s ability to raise money depends to a large extent on the networking skills and pitching ability of the founders. While this is still important early on, when a product has data showing its market fit, analyzing that data will give a potential investor a much more nuanced picture: thousands of data points can provide more insight. information in a single PowerPoint presentation.
Data, growth and profitability
Despite popular belief, the data used to evaluate businesses around the world is quite universal, making it an ideal challenge to tackle from an AI perspective. A data-driven framework not only expands the pool of viable companies for future investment, but they will also compete under the same unbiased conditions. It doesn’t matter where you went to school, who your parents are, or if you have the right network. It will all come down to data and each company’s predictable growth and profitability.
Additionally, adopting AI has benefits for both startups and investors.
From an investor perspective, AI can help streamline the due diligence process and reduce the time and costs needed to determine their investment strategy. Additionally, the analysis can be used on a large scale to find deals that will make a good investment case. This can also help with timing; identifying the right time for an investment that is crucial to winning the deal, as well as benchmarking against relevant peers and comparing companies across industries.
For startups, AI can be used for predictive modeling to simulate future outcomes and growth opportunities, taking into account complexity such as market trends and financing alternatives. This can help startups be more proactive in their fundraising efforts and invest their capital more intelligently.
Additionally, startups can leverage AI to better understand their own data and tell their story and performance, including through the use of LLM, and even use it to target certain investors. All while being able to offer a whole new level of transparency to investors when evaluating a potential investment.
Too important not to
There is currently no universal solution to the financing problem, and it is not enough to simply talk about the need for change. AI will undoubtedly play a vital role in how companies around the world are valued, directly affecting their ability to raise capital and thus making traditional pdf pitching and shark-tank processes ripe for disruption.
As founders, investors and builders, it is our responsibility to work together and use the resources we have to increase our chances of success. We have to succeed – the impact that unique ideas have on the world is too great not to.
Main image via Ark Capital.
