Is it just hype? How investors can vet a company’s AI claims

by | Nov 6, 2022 | Technology

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Almost every confidential investment memorandum (CIM) for a tech-driven enterprise includes the company’s mention of artificial intelligence (AI) or machine learning (ML) capabilities. But as with other investment buzzwords — such as “subscription revenue” — there is a tendency to use AI or ML to suggest complex, business-enabling, proprietary technology and processes to distinguish the offering as differentiated or technologically superior. This is often to garner higher valuation.  

We’ve all heard examples of AI failures that make for good headlines and provide interesting cautionary tales. But as an investor, it can be just as frightening to learn that the AI capability that drove an above-market valuation is not much more than a spreadsheet with some marketing spin. 

In our role as advisors to technology investors and management teams, we often encounter a question central to the investment thesis: Is the AI/ML the real deal? Here’s how to find the answer.

Make sure everyone’s speaking the same language

Varying interpretations of “artificial intelligence,” “machine learning” and “deep learning” can create confusion and misunderstandings, as the terms are often misused or used interchangeably. Think of the concepts this way: 

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Artificial intelligence is any system that mimics human intelligence. With this definition, AI could refer …

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