How AI Is Revolutionizing The Investor Evaluation Process

Entrepreneurs should take the time to understand how AI is revolutionizing the investor evaluation process. Keeping pace with rapidly evolving technological advancements should be high on a startup founder’s list of priorities.

Artificial Intelligence is making waves across the board, and almost every industry is benefiting from data-driven innovations and transformed processes. Investors looking for viable projects to support also use AI in their due diligence procedures.

They leverage Artificial Intelligence to evaluate data from multiple sources and use the results to improve their efficiency in decision-making. AI has the potential to handle significant amounts of data and obtain in-depth information that investors can use.

Entrepreneurs looking for funding for their projects should also learn how investors think. They should ensure that they tick off the boxes in the pitch decks they prepare to entice investment. And a great starting point is, again–AI.

Read ahead for more information about how AI is revolutionizing the investor evaluation process. You’ll also learn how to create compelling pitch decks that maintain your edge over the competition.

Conventional Fundraising Strategies Have Their Limitations

Conventional fundraising strategies have several limitations, regardless of your targeted investors. Applying to an incubator program has just a 1% to 3% acceptance rate.

Getting into an accelerator program is no less challenging, with acceptance rates being just 3.8%. Pitching to venture capitalists and angel investors is equally difficult, with global VC investment falling year over year. Just 1 in 400 startups are successfully able to acquire funding.

In this scenario, you’ll need to up your game, and using AI is the perfect leg up. Catching the attention of your targeted investors with pitch decks and networking events is a time-consuming task.

Relationship-building is tedious, and when you have an industry-disruptive, time-sensitive idea, getting it out there in the market quickly is crucial. Especially when the competition is heating up.

Investors receive thousands of pitches all the time. Sifting through the emails and data not only takes time but also significant resources. The selection also depends on the evaluator’s expertise, personal views, perceptions, and, more often than not, gut feelings.

Also, factor in unfair biases and human error that may result in viable projects like yours slipping through the cracks. Investor’s geographical locations can also be a significant deterrent to coming across innovative concepts from across the nation.

How AI is Revolutionalizing the Investor Evaluation Process – Investors’ Mindset

Using Artificial Intelligence, investors can compress months’ worth of evaluation and due diligence into a few weeks. Since AI is data-driven and automated, it eliminates the subjective human aspect of the screening process.

Automated processes can quickly analyze data to determine patterns and precedents and help make the right decisions. Investors can gather vast amounts of data from beyond their networks and locations to identify interesting projects to support.

They also deploy AI algorithms to study financial reports and projections, social media coverage, and ongoing industry trends. Scouring news channels and features for information about upcoming entrepreneurs with potential is also easily done with AI.

Most importantly, investors use automated programs to scan the startup’s performance and growth trajectory. They also study the founder’s track record before offering funding.

All of these factors can work in your favor. That’s because your startup and business idea has a better chance of coming under investors’ radar. You can also overcome geographical location constraints and reach out to investors even from global locations.

Founders Can Evaluate Concepts Before Diving into Building Startups

If your groundbreaking concepts have value, expect that AI will give the projects the right validation and funding. So, you can use technology to test your idea against a broad range of parameters.

You’ll gather data on market trends, customer purchasing power and behavior, competing products, and the industry ecosystem. This information can prove invaluable when assessing if your products are suitable for the market.

Financial reports and data are some of the most crucial slides in a pitch deck that investors examine. They want to ensure that their money is secure and there’s potential for rich returns. You’ll compile this information carefully, keeping in mind the investor perspective.

Before pitching to investors, you can use AI to do your due diligence. You’ll ensure that your business idea has the potential to attract funding.

Leveraging AI to Test Intellectual Property

Intellectual Property-backed startups are attracting significant amounts of funding, and developing this asset can give your startup a definitive edge. From the time you come up with the idea to develop the IP or intangible assets, you can use artificial intelligence.

You’ll use AI to analyze existing patents to determine trending ideas that have saleability and are worth developing. You can get the founding team to check through competing products to build on them and create more innovations.

AI can also help you identify potential products that can be licensed and patented. Studying the competition using advanced AI programs ensures that you avoid infringing on existing copyrights and patents.

Considering the importance of brands, logos, taglines, and other defining assets, you’ll need to make sure they are unique. AI programs scan the internet for hundreds of trademarks to ensure your assets are unique and unlike any others.

Securing these assets is also crucial since you can use them to generate revenues by leasing them out. The ability to sell them at premium prices to raise money or pay off loans also adds to their value.

Securing and Managing Intangible Assets Using AI

Having acquired patents, trademarks, and copyrights of your own, you’ll use AI to locate any violations and prevent them legally. Taking steps to secure your IP is easily executed when you can use AI to detect illegal copies or similar products.

Also, deploy AI algorithms to automate the management of your IP portfolio, including tasks like getting alerts on patents expiring. AI can assist you with putting in renewal applications and tracking any IP-related contracts and agreements the startup enters into. Dealing with such tasks typically involves analyzing huge amounts of data that AI can easily execute.

Adding information about AI management for your IP in the pitch deck convinces investors that you know how to secure the startup’s IA. Or intangible assets.

Keep in mind that in fundraising, storytelling is everything. In this regard, for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.

Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.

Exploring Risk Management with AI

Artificial Intelligence can be a valuable due diligence tool when assessing the potential risks the startup faces. Not only can you take the necessary steps to avoid pitfalls, but you’ll also learn about the risks investors see.

A new company must prepare for several different types of risks, and AI can identify and navigate most of them. For instance:

• Ideating a product that has no market or buyer interest or falls short of competing options.
• Inadequate runway or irregular cash flows
• Regulatory compliance
• Expensive litigation and lawsuits that can cripple the startup
• Cybersecurity issues
• Running out of money to run the company
• Fluctuating market trends and political conditions

Securing Your Startup from Failure

Deploying AI to study market trends and customer buying habits will ensure that you come up with great products. This simple exercise eliminates the risk that drives 42% of startups’ failure.

You’ll also use AI to conduct analyses on your financial reports to accurately predict if the company is likely to face cash flow issues. That’s an issue that plagues 38% of new ventures, causing them to fail.

AI can detect potential gaps in the company’s security systems to alert you to possible breaches. You’ll not only get assistance with securing customers’ Personally Identifiable Information (PII) but also help with complying with cybersecurity regulations.

At least 60% of startups affected by cybersecurity breaches fold within 6 months. Another 2% close doors because they hit regulatory roadblocks. And were unable to get their licensing and registration procedures right. Using AI will help you stay on top of your legal obligations.

Examining a startup’s risk management plans is an essential part of investor due diligence. They’ll appreciate your having all the crucial bases covered.

Startups Must Take Advantage of AI-Driven Tools

Founders exploring how AI is revolutionizing the investor evaluation process can start by identifying the specific tools to use. Check out some of the best investor selection tools and what you can do with them.

First on your list should be robust investor evaluation platforms like Crunchbase, Gust, AngelList, and SeedInvest. The machine learning programs they use analyze startups’ profiles, business verticals, and funding needs. The applications also check their social media presence and financial reports to deliver more accurate results.

You can run your venture’s metrics through the algorithms to find a list of investors most likely to offer funding. A great example is Freenome, which was able to raise $270M in funding using these tools.

Other tools savvy founders should leverage include:

• Financial Analysis using advanced modeling algorithms like Finbox, SolveXia, IBM Cognos, Jirav, and Quantrix.
• Legal compliance checking software like LawGeex, QT9 QMS, Skillcast, Satori, and SiteDocs.
• Evaluating operational efficiency automations like Augury, Falconry, KCF Technologies, Infinite Uptime, and AssetWatch.
• Risk assessment programs like DataRobot, Azure Machine Learning, Google Cloud AutoML, Amazon SageMaker, and Alteryx.
• Intellectual Property and Intangible Asset valuation tools like IBM IP Advisor, Amto, PQAI tool, Patent ClaimMaster, and Rowan.
• Real-time Competition and Market Analyzers like Crayon, AlphaSense, Klue, Seismic, and Contify.

Investors are likely to ask questions about the AI tools you use to enhance your startup’s operations during the Q&As. Listing algorithms like the examples mentioned above give your pitch a positive edge. And that’s how AI is revolutionizing the investor evaluation process.

Need more information about how to find investors for your startup? Check out this video I have created where I explain how to execute this crucial task.

Using Artificial Intelligence is Not Exactly Fool-Proof

Using Artificial Intelligence to evaluate startup profiles is quickly gaining traction. However, investors and startup founders should not rely entirely on the results generated by algorithms. Several factors may result in inaccurate results acquired through automation.

• AI analyses, though precise and time-saving, are entirely dependent on the data fed into the tool. If the data is incomplete or biased, the algorithm will also provide flawed suggestions that may skew investors’ decision-making.
• Investors don’t just rely on the financials and other metrics to evaluate startups for funding. Even if their business concepts are not entirely viable, founders can acquire funding depending on previous successful exits. Business acumen, mission, vision, and other factors also influence investment, and AI cannot calculate such intangible facets.
• The founding team is one of the most crucial elements that can make or break the success of a pitch. Investors check their track records with successful companies, dedication, work ethics, and motivation levels. Again, these factors are not quantifiable with AI.
• AI cannot replace human intuition, expertise, and experience when assessing projects for their suitability for funding.
• AI algorithms typically deliver results based on previous investment portfolios. As a result, the tools may give you only a list of investors that have funded startups like yours. However, funders prefer to diversify their portfolios by dispersing funds over a selection of industries and business ideas. You could lose out on these results.
• Entering vast amounts of data into AI programs can raise the risk of ethical issues. That can happen if founders use personal data to analyze customer buying trends and purchasing power.

Using AI helps in decision-making because of the speed and accuracy with which the tool computes data. You can eliminate manual labor and simplify complex computations. However, do remember that the results you get are only as good as the data you feed into the program.

How to Leverage AI Correctly?

Entrepreneurs looking for funding for their new ventures should understand how AI is revolutionizing the investor evaluation process. They can use AI tools to find investors and create compelling pitches, customizing them according to their particular screening criteria.

Investors also leverage AI algorithms to conduct due diligence when identifying viable projects to back. Although Artificial Intelligence can streamline and speed up investor evaluations, the tools are still in their infancy stage.

Founders and investors should only use AI to augment human intuition and expertise. But know that AI cannot replace the human element entirely. Strategic understanding and industry experience are crucial for selecting projects that have potential.

Integrating AI in your navigation through the evolving business landscape is an excellent idea. You’ll need the skills to stay relevant in an increasingly competitive world.

But also know how to devise the ideal blend of human expertise and an AI-driven knowledge base. Use both effectively to propel your startup forward.

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