Artificial intelligence

Artificial intelligence (AI) is finding its way into every aspect of life. AIs are especially useful in making predictions, and as long as they are fed the correct data, AIs can predict anything. Therefore, it is not surprising that investment companies are looking toward AI for informed decision-making, especially in new areas like web 3.0 & crypto.

AI’s role in investment decision-making

A lot of data can be gathered from the internet to train an AI to make the right investment decisions. Platforms like LinkedIn, Crunchbase, and third-party data marketplaces can be used to drive AI-based financial research.

For example, such data can be used to predict a startup’s potential to attract investments. A study revealed that Artificial intelligence-driven hedge funds had higher average monthly revenues over 15 years than human-based research. This study shows some truth behind the data provided by Artificial intelligence tools.

Venture capital firms are also turning towards AI to pick suitable investments by projecting the performance of investment targets. Artificial intelligence software is fed data such as regulatory filings, open source contributions, pitch decks, and more to make predictions. Some examples of VCs using AI to make investment choices include Signalfire, Hone Capital, and Deep Knowledge Ventures.

According to Gartner, 75% of venture capitals will adopt AI to make investment decisions and determine the leadership of the teams that are more likely to succeed based on factors like employment history and success in their previous positions.

Not all VCs agree to the use of AI

A survey by TechCrunch to determine the use of Artificial intelligence by venture capital companies involved some of the leading VCs in the market. Most VCs failed to respond to the survey, indicating that AI-powered investment tools were yet to go mainstream.

Moreover, the VCs that deploy AI tend to make it known to others, which creates the assumption that Artificial intelligence is not a significant piece of the modern investment space. However, the vendors selling AI software are optimistic that this will change.

A VC can use AI for various purposes. It includes seeking funds to identify the early signs of growth and assessing the growth of the existing portfolio companies. Therefore, the slow adoption of AI software by VCs shows that the software is yet to prove it can perform better than the other tools and experts that VCs have in place.

Moreover, the use of AI also has its disadvantages. In November 2021, the Harvard Business Review created an investment algorithm and compared it to the performance of angel investors. The study showed that the algorithm outperformed new investors. However, it lagged behind experienced investors and showed bias that the investors did not show.

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