AI innovation outpaces its financial market infrastructure. A bridge needs to be built

AI has advanced to a high level of sophistication, yet the financial market infrastructure remains relatively underdeveloped. Therefore, there is an immense opportunity for progress within the world of finance when it comes to investing in cutting-edge technologies.

Struggling to keep up with 21st century technologies, outdated consensus approaches continue to dominate investment and financing decisions in the AI industry. As a result, vast amounts of potential funding for innovative companies remain untapped, leaving both investors and innovators at risk of missing out on potentially lucrative opportunities.

The world’s biggest investors and largest holders of wealth exhibit a prudent, conservative approach towards investing. They primarily focus their attention on markets that are de-risked, liquid and highly tradable, making venture capital firms the sole riders in the arena of AI financing–these entities can hold longer investment periods coupled with higher levels of risk.

Investing in the AI industry? Leverage AI for due diligence

Investment strategies in the current landscape require sophisticated, AI-driven and data-informed approaches to keep up with rising complexities. Investing in AI technology is best done using AI itself. Investing ‘with’ AI can range from target identification and analytics to forecasting, benchmarking, due diligence and de-risking, all while using AI systems that are capable of executing these investments accurately.

Sifting real AI from hype

Early investors in AI have the potential for major financial rewards. For those considering AI ventures, it’s important to conduct due diligence and ensure the investment is truly rooted in science-driven technology. Otherwise, they may simply be buying into an inflated buzzword rather than realising tangible returns.

For instance, FinTech experienced a boom between 2016-2019, and the returns for investors were remarkable. However, with FinTech now becoming somewhat ‘standard technology’, savvy investors have shifted to complex domains at the convergence of science and technology—something that was scarcely seen roughly five years ago. By investing in these forward-thinking fields, individuals as well as institutions can generate differentiated returns from their ventures.

To evaluate an AI startup as an investment target, investors must conduct extensive due diligence specifically adjusted to the AI sector rather than using traditional assessment metrics.

Some savvy investors are already safeguarded from exaggerated claims with the aid of advanced AI-powered due diligence solutions that provide semi-automation to reduce risk.

AI startups seek to revolutionise and shape the future, so naturally they must hold themselves to a much higher standard. Without scientists or engineers on board, these startups would not be considered true AI players.

The writer is General Partner, Deep Knowledge Group