Recently, Gartner stated in a white paper that investors increasingly use artificial intelligence (AI) and data analysis technology. Moreover, it said that 75% of the VC (Venture Capital) will use AI to make investment decisions.
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Gartner predicts that it will become commonplace for investors to use AI and data science to make investment decisions.
By 2025, more than 75% of venture capital executive reviews will be conducted using AI and data analysis. In other words, AI may determine that a company can pass the manual evaluation. Thereby, it will dilute the importance of Pitch Deck (a presentation to VC) and financial status.
How Artificial Intelligence Helps Making Decisions
Patrick Stakenas, senior research director at Gartner, said that the enhancement of advanced analytical capabilities is transforming early-stage venture investment strategies from “intuitive” and qualitative decision-making to a “platform-based” quantitative process. Starknas said that data collected from sources such as LinkedIn, PitchBook, Crunchbase and Owler, as well as third-party data markets, will be used in conjunction with various past and current investment standards.
‘This data is increasingly being used to build sophisticated models. They can better determine the viability, strategy, and potential outcome of an investment in a short amount of time. Questions such as when to invest, where to invest, and how much to invest are becoming almost automated. The personality traits and work patterns required for success will be quantified in the same manner that the product and its use in the market, market size, and financial details are currently measured. AI tools will be used to determine how likely a leadership team is to succeed based on employment history, field expertise, and previous business success.’
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As the Gartner white paper points out, current technology can provide insight into customer needs and predict future behavior. A comprehensive archive can be established with almost no human input. It can be further improved by natural language processing artificial intelligence technology. Artificial intelligence can determine a person’s quality from real-time or audio recordings. This technology is currently used primarily for marketing and sales purposes. But by 2025, investment institutions will use it to determine which leadership teams are most likely to succeed.
Is AI Already Used In Venture Capital?
Signalfire, a venture capital firm in San Francisco, California, is already using a proprietary platform called “Beacon” to track the performance of more than 6 million companies. The platform spends more than $10 million each year and utilizes 10 million data sources. It includes academic publications, patent registrations, open source contributions, regulatory documents, company web pages, sales data, social networks, and even raw credit card data. Companies that perform well are flagged, which allows Signalfire to see potential transactions earlier than traditional venture capital companies.
Of course, this is not to say that AI and machine learning are panacea for investment decisions. In an experiment last November, Harvard Business Review constructed an investment algorithm and compared its performance with the returns of 255 angel investors.
Using the most advanced technology, a team trained the system to select the most promising investment opportunities from 623 transactions. The decision of this model is based on the same data available to investors. And it ultimately performs better than novice investors but inferior to experienced investors .