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What VCs Want Before Investing in an AI Startup

You may have vision and the passion to pursue it, but that doesn’t mean VCs will see your perspective from the start. Investors want results, preferably in the form of big checks. To woo VCs and push your business to the next level, you need to go beyond buzzwords and show them something they can’t help but fund.


AI startups have made major headlines as investment vehicles, but not all of the news has been good. One 2019 report found that 40% of so-called “AI startups” in Europe offered little to no artificial intelligence in their products and services. Investors don’t want to throw away their money on half-truths. If you want cash, you need to prove to investors that you have a legitimate future in the AI space.

Investors have plenty of cash to spend, too. VC funding for AI hit $9.3 billion in 2018, with more on the way. The money is there for the taking. Does your startup have what it takes to earn a piece?

Use this checklist to ensure you have everything you need to secure VC investment for your AI startup:

1. Capable and Multidisciplinary Teammates

You can’t do everything alone. Who else at your company will help achieve your vision? A technical founder may need help with marketing and customer service, while a great salesperson may need help getting the product to work as intended. Investment company Village Capital took it to the next level and created a team analysis process to judge founding teams on their personalities.

Many VC firms will judge your team by feel. Even without formalized systems, they all want to know whether your team is up to the challenge. Hire people you trust, then delegate early and often. If your company doesn’t need you to jump in and fix every little problem, investors will feel more comfortable signing checks.

2. Opportunities to Expand

Can your company pivot to take advantage of new opportunities? Investors adore flexibility, especially in early-stage companies proving themselves in the market. You may discover that your product or service works better as a B2B offering than as a direct pitch to consumers.

Cocoon Health, maker of an AI-powered baby monitor that tracks a baby’s sleep data and breathing rate, has recently begun licensing its technology to businesses interested in its tracker-free vital sign detection. Even if you find success in your first market, greater opportunities may exist in others. Focus on delivering value while creating technology or services that could be leveraged by other markets to keep investors interested. 

3. Sustainable Data Strategies

Artificial intelligence models are only as smart as the data they consume. Startups in the AI arena need access to proprietary data and a product capable of doing something with that data that no one else can do. Ablacon, for example, created a product that can understand and treat a condition called atrial fibrillation, also known as arrhythmia. By feeding the tool a feast of heart-related data, Ablacon created something that can identify and treat a common condition with minimal outside help.

Healthcare desperately needs more tools to glean insights from the complex information machine that is the human body, but other fields have opportunities as well. Manufacturing, real estate, supply chain, education — everything depends on data. Startups that gain access to more and better data get preferential treatment from potential investors.

4. Proof of Traction

Investors stopped placing monthly user counts on a pedestal years ago. Today’s investors want to see conversions, results, and case studies that showcase the use of a product in the field. For AI teams, that means landing a client and successfully demonstrating the AI’s value proposition through the client’s success. 

Running lean isn’t easy, but investors remain leery about funneling money into companies that lack real accomplishments. ZappyHire, born in July 2018, managed to bootstrap its way into the burgeoning HR technology field with an AI product connecting companies to the right candidates. According to its founders, ZappyHire became cash-positive within its first year — a great sign for potential investors.

Take the classic founder’s advice to stop focusing on the needs of the world. Focus on a few clients in front of you, create the solutions to match their needs, and leverage that success into funding a brighter future.

You may not have all your ducks in a row for your AI startup, but don’t let that stop you from meeting investors. Talk about how you plan to bring on capable teammates and which prospects would make a good case study. Show off the potential of your machine, and speak with mentors about opportunities to explore other industries. Securing investment money may take some time. But if you do it right, you’ll end up with all the cash you need to realize your AI vision.

Author : Holly Hutton

Born in the Big Easy and raised in the Sunshine State, Holly has spent the last five years brunching in the Big Apple and bantering with Big Ben. As a wandering writer, techy-in-training, and avid alliterator, Holly has written everything from educational policy and political news briefs to web content and travel blogs. She is thrilled to be a part of the KS team and working with a community of smart, savvy, entrepreneurs on all things startup!

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