The title of this article might sound farfetched to many readers, but keen students of artificial intelligence (AI) know that this is no longer very far away. Since the advent of computers, capital markets have always been at the forefront of technology. Yes, that’s right. You may be wondering why these old 100-plus-year-old banking and financial institutions are doing with cutting edge technology.
Think about this for a second: Venture capital companies (VCs) have been investing in all sorts of technologies. Waves of VCs from across the globe invest routinely in the next big things in technology. As Marc Andressen, founder of Netscape, famously said “Software will eat everything.” Truly, the revolution of technology disruption is relentlessly marching on.
So far, venture capitalists have been investing in all sorts of technologies. In recent years, a massive wave of capital has been funneled into artificial intelligence. This does not even include the now-famous Vision fund 2 of SoftBank, which is supposed to be $100 billion in size. Even individual companies are raising capital on their own — Open.Ai raised $1 billion from Microsoft alone.
How do VCs make these bets on companies? As I have seen in numerous VC pitches, it normally boils down to three major aspects. First, you have the size of the market. Is it growing, and are there any established leaders? Second, you have a product or service. Is it strong enough to withstand copycats and agile competitors who can duplicate that product? Third, we have the quality of the team in question, which includes the team’s founders and leadership. Do they have the right attitude?
There are dozens of other factors that go into making an investment decision. VCs tend to look at the characteristics of the founding team, and background checks are sometimes done, as well. These experts will consider the shape of the market, the team’s potential for growth, the ever famous ‘product-market fit’ and so on.
But, remember, there is no formula today for making a VC investment. VCs have failed many times in picking the right company.
But why do these VCs fail to pick the next Google or Facebook? Well, these decisions are made by humans, who theoretically cannot process more information than systems can process simultaneously. Humans tend to be subjective and moody. They’re impressed by the wrong people, and they tend to overread market ups and downs.
Given these many weaknesses, shouldn’t these investment decisions be handed over to an artificial intelligence-based system? Already, most of the public marketis controlled by algorithmic trading, and it sometimes creates havoc in the market. Remember the flash crash or subsequent Apple-related crash? These crashes wiped out billions of dollars of investors’ money.
If the majority of the capital market transactions were to be managed by computers through algo-trading, then how far are we from VC funds also being invested by computers? Already, AI is replacing or reshaping scores of jobs. Whether AI is replacing surgeons or car assemblers, multiple companies are working extensively to remove human touch.
How far are we from a pure AI-based venture capital firm? Not very far. In the next decade, we are fast approaching a situation where the entire investment process could be taken over by a system that is objective, one that constantly tracks market trends and does hundreds of analyses on founding teams. Remember, Cambridge Analytica claims to have had up to 5,000 data points on individuals.
This AI fund for AI will be able to search for thousands of startups around the world, solicit founders to participate and finally invest in the best of them.
Will these AI funds be able to deliver far superior results to investors? Imagine if this AI fund could pick every unicorn at its earliest stages, leading to investments in companies like Google or Alibaba — or some unknown unicorn. Only time will tell.
Companies and individuals need to get ready for this super accurate selection process. All businesses must change their ‘business as usual’mindset. Stay up-to-date on the latest research in this field — and keep tabs on the newest advancements that crop up. In this tsunami of technology, only companies and professionals that are technologically savvy and agile will survive and thrive.
(This article first appeared on Forbes )
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