There has been a massive push toward artificial intelligence recently with more companies, including startups, viewing the technology as a valuable resource to excel their businesses.
Investors believe the AI industry is expected to increase significantly in market value. But they're also aware they need to tread cautiously when it comes to investing in AI-centric startups, as the space is layered with complexity.
"I think from an investor's perspective, it'd be easy to make a mistake," Mark Flickinger, general partner and chief operating officer at VC firm BIP Ventures, said during a panel discussion this week at Charlotte's Seed the South Capital Summit. "It's a really hot trend. There's tons and tons of money coming in there."
Flickinger, based in Atlanta, was in town for the Seed the South Capital Summit held from May 14-15. The event returned after a Covid-era hiatus. It was created to bridge the gap between startups and investors.
Flickinger participated on a panel that included Brandon Shelton, founder and managing partner of TFX Capital, and Matt Dunbar, co-founder and managing director at VentureSouth. The discussion was moderated by Liz Brigham, director of the Hurt Hub at Davidson.
A majority of the conversation revolved around how angel investors and early-stage founders can build impactful relationships as it relates to raising capital and advising. When a point was made around AI, Brigham said that topic couldn't be bypassed.
Flickinger said most of the big money around AI is going toward technology such as large language models.
"I think AI will impact everything — hardware, software, doesn't matter," he said. "Everyone's going to be impacted by AI, most likely mostly positively."
Shelton said many founders and investors aren't experts in the AI space. That alone deters venture capitalists from pouring money into those types of startups, especially when small-business owners are "drawing these types of acronyms at you," he said.
"It kind of scares me a little bit," Shelton said. "No one knows how to talk about it."
He said founders need to work with some of the core elements of the technology such as Google or Open AI to understand the space. He also suggests they have an academic expert provide valuable training.
"So if you're just a chief technology officer, software engineer, etc., that's great," Shelton said. "But can you hire the right people that are ready to teach your software the best, the most accurate (information) as the competitors emerge around us?"
Dunbar said there is substantial noise to sort through in the AI world. It's important to pick up a signal on what ventures are going to be sensible and have power.
Similar to the rise of the internet, AI will inevitably impact every business in various ways, he said.
"But it's unclear how to build an investment thesis around that at this point, at least for us," Dunbar added. "Even for the pitches that come our way."
AI-focused questions that emerged at VentureSouth include how real and defensible is the technology over time. Dunbar said AI is going to be a trend that goes through the hype cycle, and eventually, a cadre of strong companies will be excited to invest in the space.
"But I think it's a little early for us with not being real experts in the space," he said.
Flickinger echoed Dunbar, adding that investors have to be thoughtful about how founders are using AI and how the technology can impact their businesses in a positive way.
"I think anyone who just kind of puts their head in the sand and says, 'It's not going to impact their life,' they'll just be playing catch up later," Flickinger said.
