Is AI the end of the shark tank as we know it?

ArK Kapital CTO Elin Bäcklund explores how AI can revolutionise investment decisions, level the funding playing field, and improve diversity in the tech industry.
Is AI the end of the shark tank as we know it?

To say that artificial intelligence (AI) has had an upswing in 2023 is an understatement. While a lot of the focus has been paid to the likes of ChatGPT, DALL-E, and autonomous self-driving, there is a particular use case for AI that has yet to reach mainstream adoption: raising capital. 

Today, most investment decisions into tech companies are still based on PDFs, traditional storytelling and shark tank-like processes – making the financial industry an extreme laggard compared to the big data innovation found at most major tech companies. While some of the most valuable tech companies have reaped the fruits of VC investments over the last decades, the current structure remains inaccessible to thousands of founders and companies. 

More data-driven decisions

We need more data-driven investment decisions and lower barriers to entry for entrepreneurs to get funding. By democratizing how to grow your company smartly and raise the right type of money, at the right time, we will contribute to a more diverse innovation ecosystem. 

In order to disrupt the current fundraising process, improve diversity, and pave the way for the next generation of tech companies, we must all ask ourselves if we can afford to not adopt AI and a data-informed decision framework.

According to data from Dealroom, less than 10 percent of all VC investments in Europe went to female-led companies in 2022. The funding divide and lack of diversity when it comes to securing capital has been covered extensively, but still remains a pressing issue if we are to tap into the true levels of innovation around the world. Traditionally, the ability of a startup to raise funds has depended quite a lot on the networking skills and pitching ability of the founders. While this is still important in early stages, later when there’s a product with data showing its market fit, the analysis of that data will tell a potential investor a much more nuanced picture - thousands of data points can provide more insights than one PowerPoint presentation.  

Data, growth, and profitability

Despite popular belief, the data points used to evaluate companies around the world are fairly universal, making it an ideal challenge to tackle from an AI perspective. A data-informed framework, not only widens the pool of companies viable for future investment, but they will compete on the same unbiased terms. It doesn’t matter where you went to school, who your parents are, or if you have the right network. It will all boil down to the data and the predictable growth and profitability of the individual company. 

What is more, the adoption of AI has benefits for both startups and investors alike.

From an investors’ perspective, AI can help streamline the due diligence process and reduce the time and cost of determining their investment strategy. Also, the analysis can be used at scale, to source deals that will make a good investment case. It can also help with timing; identifying the right timing of an investment which is crucial to winning the deal as well as benchmarking to relevant peers and comparing companies across sectors.

For startups, AI can be used for predictive modeling to simulate future outcomes and growth possibilities, factoring in complexity such as market trends and funding alternatives. This can help startups be more proactive in their fundraising efforts and invest their capital smarter.

Additionally, startups can leverage AI to better understand their own data and narrate their story and performance, especially through the use of LLMs, and even use it to target certain investors. All while being able to offer a whole new level of transparency for investors when evaluating a potential investment

Too important not to

There is currently no one-size-fits-all solution to the funding divide, and simply talking about the need for change isn’t enough. AI will undoubtedly play an integral part in how companies around the world are evaluated, directly impacting their ability to raise capital, and thereby making the traditional pdf pitching and shark-tank processes ripe for disruption. 

As founders, investors, and builders, it’s our responsibility to work together and use the resources available to us that can increase our likelihood of success. We must succeed — the impact that unique ideas bring to the world is too important not to.

Lead image via ArK Kapital.

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