Investing in an AI startup involves assessing market fit, unique tech, and the team’s expertise. Check if they solve real problems or just chase trends, and ensure they have strong IP for a competitive edge. Evaluate financials, burn rate, and compliance with AI regulations, as these can make or break early-stage companies. Timing and adaptability are key—look for companies meeting current demands but flexible enough to pivot. Finally, consider the exit strategy. Staying informed on AI trends reduces risk and sharpens decision-making.

Hmm... I've been on the boards of two AI companies that have been acquired this year. I wonder where we are in the hype cycle of investing in AI? Bottom line though, what is the ideal customer profile ( ICP )? The specific problem and value proposition? The ICP's ROI for the annual spend. If the solution is based on AI, why not. And build the story bottoms up and not top down. It is not about the technology!

Before investing in an AI startup, I would undertake a thorough assessment, focusing on key factors such as the founders' background, team capabilities, market size, revenue model, and clarity of the problem statement. Crucially, I would evaluate whether the startup is addressing a genuine problem that existing AI solutions—including those from major players like OpenAI, Google, and Microsoft—cannot effectively solve. Additionally, it’s essential to assess potential regulatory challenges that could impact the business model.

First, I make a distinction between foundational models (bottom of the AI tech stack) and apps (top of the stack). I eliminate the bottom of the stack as it is so competitive and capital intensive. I then focus on the apps and make a distinction between horizontal and vertical applications. Does distribution trump customization, in which case a horizontal app may be a good investment. Or does specialization and narrow data sets trumps wide distribution? depending on the answer, I would favor either horizontal or vertical AI apps. my two cents… narrow data sets that are proprietary are very valuable, which leads me to favor vertical AI apps.

Deciding to invest in an AI startup requires much of the same diligence one would use for any other investment; however, AI investments bring up more issues to consider because of the number of opportunities available and the velocity of technical evolution. What I would assess is: is the technology truly innovative & differentiated? Does the AI product fit a market need, does it solve a real problem? Does the company have access to enough data to train it properly? Can it scale at a reasonable cost - many AI solutions need large computational capability and can be costly to scale. Is there a large market for the solution? And most importantly, how good is the founding team? Do they have the right vision and track record? Hope this helps