The AI-nteligence Factor: A Perspective on Evaluating AI Startups
With the rapidly growing influence of AI advancements, investors are seeking out the next big platform that will revolutionize the world. This trend has recently made a splash as demonstrated by Google’s 300 million dollar investment in the AI startup named Anthropic, which positions itself as the “safer” alternative to ChatGPT. However, with so many options, it's crucial for investors to understand what they should be searching for to ensure that they are investing in a startup that is truly poised for success.
Because of the universal application of advances in AI, there are thousands of startups entering industries ranging from healthcare to transportation. With so many startups, however, investment firms are having trouble finding standout ventures. To streamline this process, there are six important qualities investors should be looking for in a startup. To understand the process, we’ll highlight each of these six qualities and pick a company that would qualify under the proposed criteria.
Firstly, investors are looking for startups that can bring something unique to the market. If a startup co-opts mainstream applications like ChatGPT as part of its innovation or tries to reinvent the wheel on an issue that doesn’t need attention, it is not an attractive investment opportunity. Secondly, investors are looking for a company that can capture a market opportunity. Is there demand for this particular AI innovation in this specific industry? Who are the potential customers in this market and are they willing to spend on innovative products? Third, a startup needs to be scalable. AI startups are unique in their scalability in that AI is constantly learning and improving itself as it reaches new customers.
A fourth factor is that startups should have a strategic advantage over their competitors. Desirable startups should be able to leverage concepts like cost advantages, network advantages and most importantly intellectual property advantages to cement their market share. Fifth, investors are looking to see if there’s any interest in the startup’s product, even in its early stages. There are even metrics that can be used to value a startup with no revenue. Even if a company does everything right but has gathered no interest, it will likely not have investors interested. Finally, and most importantly, investors are looking for startups that have competent leadership capable of directing the company to success.
A startup in the world of AI that fits the aforementioned conditions is the biotech startup Precision, a company researching “brain-computer interface technology.” Precision is trying to develop a system of flexible microelectrodes designed for minimally invasive and reversible surgery in order to heal neurological conditions. While Precision may have a long time to go until they develop their first product and get it approved, it seemingly fits all of the aforementioned different qualities of a startup worthy of investing in. Precision’s technology is certainly an incredibly innovative idea, and it has a large market opportunity waiting in the healthcare industry. According to Precedence Research, “the global brain computer interface market size was evaluated at USD 2.79 billion in 2022 and is projected to surpass around USD 9.31 billion by 2030 with a registered CAGR (compound annual growth rate) of 16.26% from 2022 to 2030.” With the ability to cure many diseases, Precision can potentially gain significant market share in this burgeoning industry.
What separates Precision from other companies is how minimally invasive the technology is. As opposed to other similar companies that utilize a procedure known as a craniotomy, which removes a significant portion of the skull to cure these neurological conditions, Precision makes a very thin slit into the skull and slides in the device like a letter into a letter box. Furthermore, Precision acquired multiple patents that will allow them to have a significant advantage over other companies. The leadership of Precision is very creative as both co-founders were also part of the team that founded Elon Musk’s brain-computer interface company called Neuralink. The company admittedly hasn’t gained much traction yet, but that is normal in the pre-revenue stages. Overall, Precision’s potential makes it an opportunity that investors should be interested in.
Understanding the dynamics of startup funding is incredibly important to everyone, even those not planning on going into the finance industry. A lack of perspective and understanding of what it takes to create a financially lucrative startup will lead to many lost technologies and potential improvements in living standards. It is important to try and understand what investors are looking for, and we need to try and put ourselves in their shoes to understand the decisions they’re making.
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