As technology continues to outpace any other market for investment, venture capitalists are showing particular interest in the promise of artificial intelligence. Since 2017, $52bn has been invested in AI, almost 400% more than investment in the Internet of Things, robotics and drones, and more than 500% more than investment in mixed reality and blockchain technologies.
With interest growing, the number of companies entering the AI market has grown considerably too. As reported by venture capital form MMC Ventures, one in 12 European startups is now considered to be an AI company.
Yet, according to Nadhu Namburi, Head of Technology Investment Banking for JP Morgan, only so many will succeed:
“The reality is, only a very small fraction of the companies in the beginning will actually be up there.”
So how can you ensure that your business is among the “category definers” in AI? Speaking at IPSoft’s annual Digital Workforce Summit, Namburi provided insight into what investors are looking for in the fast-emerging market.
Practical, profitable uses
“At the end of the day, investors fundamentally look at the product. They look at the core technology,” Namburi said.
While there is an abundance of AI companies, those that solve genuine problems are those that will achieve success. The success of startups like Uber and Lyft is evidence of this, which Namburi feels contrasts against the slow adoption of blockchain technology.
“That’s why Uber took off and Lyft took off, because that is a genuine need – people were tired of waiting for cabs.” Namburi explained. However, “when you try and solve something because it’s cool”, like with the use of blockchain technology to facilitate payments, “it doesn’t really solve a problem”.
IPSoft’s technology provides further evidence of this in the AI market.
Amelia is a human-like AI that uses automation, cognitive and emotional intelligence, and machine learning to understand human intent and provide support for both customers and employees.
According to Chetan Dube, CEO of IPSoft, investment management company Blackrock saw average speed of answer fall from almost four minutes to three seconds after implementing the technology, and time to customer satisfaction drop from eight minutes to one minute and eight seconds. Telefonica, another IPSoft customer, saw retention rates increase to 67% after implementing Amelia as a customer service solution.
“That’s the power of real end-to-end AI,” Dube said.
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“People see what is the use case – not just something that’s nice to have, but something tangible they can see, which can lead to commercialisation and making money,” Namburi explained.
Showing the commercial value of and interest in your product early on will only help to drive up its value, he explains:
“The higher the value of the technology, the higher the valuation tends to be. That’s the number one thing.”
Product aside, companies and their leaders also need to show vision if they are to be successful in an emerging market – “Vision matters,” Namburi believes.
Blockbuster and Netflix provides evidence of this need to think ahead. Blockbuster was once the untouchable in the video on demand market, bringing in $6bn in annual revenue at its peak. However, failure to foresee the rise of online video streaming ultimately cost the company its position as a leader in the market.
Blockbuster could have acquired Netflix for $50m in 2000, but passed up the opportunity as it felt that Netflix was a “very small niche business”.
Netflix is now a $150bn company, while Blockbuster ceased operations in 2013, which shows how long term strategy can provide huge results.
“It takes a long time,” Namburi explained. “You can’t just wake up one day and say ‘Oh, here’s my vision’.”
A proven track record
Investors want to see a return, and as a result, those that have a proven track record of success are at an advantage.
Last week Berkshire Hathaway’s Warren Buffett announced that his investment firm had acquired shares in online marketplace Amazon. While the investment leader has often steered clear of emerging tech companies, Berkshire’s vice chairman Charlie Munger admitted that both him and Buffett “feel like a horse’s ass” for failing to identify companies like Amazon and Google sooner.
“So what makes Amazon special?” Namburi asked. “They deliver flawless execution – investors care for that.”
To be successful in the AI market, companies need to display similar execution. Ultimately, proving that you not only have a good product and good ideas, but the quality and culture to continue developing and growing that product, will turn heads in the investment world.
“People will want to know how quickly will you evolve, how can you continue to work with the customers and come up with use cases and commercialise it, because they have to justify the spend in their organisation” Namburi explained. “Investors do care about that.”