Artificial Intelligence (AI) is reshaping industries, from healthcare and finance to retail and logistics, offering new ways to analyze data, automate processes, and drive innovation. Investing in AI startups can provide unique opportunities to be part of groundbreaking advancements while potentially reaping substantial financial returns. However, like any early-stage investing, it also comes with its own set of risks, from market volatility to technology challenges.
This guide will walk you through the essentials of investing in AI startups, whether you’re a seasoned investor or just beginning to explore the world of venture capital. We’ll cover key considerations such as identifying high-potential companies, evaluating business models, understanding the technology, and assessing market demand. By the end, you'll have a solid foundation for making informed decisions about investing in this rapidly evolving field.
Why Invest in AI Startups?
The answer to this question is very simple: AI is already part of daily life, and in the years to come, the role it plays will only increase. A partial list of fields that are touched by AI, or rely on AI for one reason or another, includes:
- Blockchains
- Cryptocurrency
- Robotics
- Biotechnology
- Computing
- Education
- Machine learning
That translates to a lot of opportunity and money. In fact, a recent study by the Organization for Economic Co-operation and Development found that venture capitalists spent more than $75 billion on AI startups in 2020. That’s up from $12 billion in 2012.
Many of the venture capitalists banking so heavily on AI startups are the same ones who made a mint off of their early investments in e-commerce and social media such as Amazon.com Inc. (NASDAQ: AMZN), eBay Inc. (NASDAQ: EBAY), Facebook Inc. (NASDAQ: FB) and Instagram. These heavy bets can only reveal one simple conclusion: People in the know are banking on AI as being here to stay.
Why wouldn’t they? The potential applications of AI are almost limitless. When you get beyond the science fiction run amok with fears of killer robots, you could be left with a host of innovations that could save your life. Imagine a nanobot or a group of AI-enhanced nanobots that are programmed to seek out and destroy brain cancer cells in a tumor that is inoperable by human hands.
The autopilot feature in new Teslas relies on AI technology. The same is true for the self-driving cars being pioneered by a number of different tech companies. The single common thread running through the latest innovations in a multitude of different fields is their increasing reliance on AI. That means anyone who gets in on the ground floor of an AI startup that fills an existing need, or advances an existing technology, stands to profit richly from that investment.
Where To Find AI Startups To Invest In
This is where it gets a little complicated for the everyday retail investor. If you’re like most people, you don’t have a direct line to Silicon Valley, China or any of the other typical launchpads for AI startups. That makes it a bit of a challenge for you to find AI startups before they are publicly traded — and unaffordable.
Thankfully, there are a number of online crowdfunding platforms that offer equity shares in AI startups in exchange for early investor seed money. The Wefunder platform has more than 40 AI startup offerings and has already fully funded over 50 other ventures. If the idea of picking and choosing which AI startup to invest in is intimidating because you lack specific knowledge, there are still a number of funds, such as the one offered by Alumni Ventures.
The good thing about AI startups is that they are so tech-oriented that their mission dovetails beautifully with any number of online crowdfunding and investing platforms. That’s why AI startups are one of the most popular alternative investments, and because of this there are a multitude of AI startup offerings on all the best online crowdfunding platforms.
Choosing Which AI Startups To Invest In
Choosing when and where to invest your hard-earned money is never a simple process. This is especially true when it comes to investing in startups, which is inherently risky. After all, a startup is basically an idea.
Weighing that good idea versus the cost of bringing it to reality at a reasonable price point is one of the most difficult equations to balance. That’s not even taking into account the fierce nature of what has become a global competition for AI advancement. All of this serves to make choosing which AI startup to invest in a very difficult task for retail investors.
The good news is that the same fundamentals that guide wise investing in other fields apply to AI startups. Due diligence, patience and, perhaps most importantly, a focus on diversification are the keys to choosing AI startups to invest in.
It’s very likely that AI is making inroads into a field or business that you already have an affinity for. AI is literally everywhere — from crypto and banking to biotech and all points between. If you’ve got investments, professional experience or an interest in any particular field, think critically about where and how AI could be put to use in that field. This is a great place to begin looking for investments.
The key thing to keep in mind here is that AI startup investing is a lot like fishing. You’re probably going to have to cast your line and lure into the water a whole lot before you catch a big fish. That’s why it might be a better idea to invest in a venture capital fund that specializes in AI startups rather than trying to pick them yourself. If you invest in a fund, your capital will be spread across a number of different startups that have already been vetted by people with a history of successfully funding them.
The AI Revolution Train Is Coming, so Get on Board
The words artificial intelligence can invoke strong reactions in people. Some see it as having the potential to truly revolutionize humanity. Others see it as a genie that should be kept in a bottle before it gets out of control. Regardless of where you sit on that debate, the fact remains that AI is a part of life, and that’s not going to change anytime soon.
If anything, AI will continue to become a larger and larger part of all of life in the years to come. You can either lament that fact, or try to figure out how to take advantage of it because the AI the train is coming, and there’s no stopping it. The good news is that the potential applications of AI are limitless, which means the investment opportunities are, too. It’s the wave of the future, and that future is now. That’s why the sooner you begin making wise investments in AI startups, the sooner you can start riding the wave and building wealth.