The venture capital (VC) business is often described as a high-stakes form of gambling. And right now, nobody’s in the mood for betting much of anything.
Indeed, uncertainty reigns as the global economy is under pressure from multiple complex and interconnected crises. These challenges—which include inflation, climate change, the war in Europe, supply chain disruptions, and the COVID-19 pandemic, to name a few—have merged into what experts have called a “polycrisis,” they have frozen much of the confidence in place. No wonder venture capitalists have started pulling back on potential investments.
I understand these instincts. But what if I told you that technology exists to make betting on startups safer and smarter than ever? Essentially, VCs could have access to better odds and inside information – the kind of information that gamblers crave.
Given that advantage, I’d argue that now would be the ideal time to aggressively place bets while the rest of the market is panicking. This isn’t just theoretical.
An emerging form of artificial intelligence (AI) could dramatically alter the practice of venture capital investment, a business that a combination of gut and analytics has largely driven.
The vision is that VCs would be able to identify startups predisposed to succeed and that founders could skip their growing pains immediately.
It’s intriguing to imagine how that might change the investment world, especially with the polycrisis taking a toll on the global economy. It’s even more fun to speculate how that could better foster American innovation or even accelerate the advance of technology in society and business.
The Promise of Lean AI
These dreams may seem ambitious, but they are precisely what my book Lean AI promises to deliver – a game-changing tool for the world of venture capital.
If you think about the typical tech startup or even a cutting-edge consumer brand – both would pride themselves on being data-driven and highly efficient when acquiring customers.
Any company launching in 2023 would pride itself on being laser-focused on managing its key performance indicators – pulling every lever to bring down its cost per whatever matters.
They’d boast of running hundreds, if not thousands, of A/B tests to get their message or product right. Failing to do so would lead to underperformance and market failure.
And if things aren’t working, they try a different marketing tactic or sales channel fast. In such cases, they pivot the entire business model or offering – without hesitation.
Moving fast and breaking things is a startup religion – and it’s often celebrated as being ruthlessly efficient compared to the plodding nature of legacy companies.
Eventually, most startups get there – to something resembling a viable business model. Maybe even a fast-growing one. And they feel good about what they see as a disciplined, prudent process in getting there.
Yet, in most cases, the process costs a lot of time and money. There’s a reason it’s called a burn rate, after all.
With the current state of the economy, very few companies could withstand such an undisciplined approach. After the pandemic, it’s unlikely that startups that pivot constantly will be viewed the same way.
Blaze through trial periods
Proponents of Lean AI ask – what if we could skip all that? What if a startup could ‘know’ its business model and operating costs immediately without hiring tons of people to figure all that out?
Just imagine if a VC could pick and choose which startups don’t need to pivot this way and that and don’t have to blow through gobs of cash and loads of hiring.
Impossible, you might think. Some things require trial and error. Except that machines don’t.
We are seeing an emerging form of AI that can solve these problems. We’re not talking about massive, change-the-world AI (like robots that take over our jobs). We’ll get there someday.
For now, we’re talking about a lean form of AI that can be designed to help startups blaze through their trial periods.
This AI can run through scenarios and determine marketing costs and supply chain thresholds. Instead of founders pouring over spreadsheets or playing around with real-time media dashboards, machines can use uber-efficient algorithms.
Algos always win. And founders can start running their companies with higher predictable odds of becoming the next tech startup unicorn.
Redefine the Role of Venture Capitalists
As we stand on the precipice of new possibilities, venture capitalists have the unique chance to redefine their role. The notion of the VC as a daring gambler may recede, replaced by a VC equipped with insights that redefine the odds.
Just imagine the great companies we’d discover. More importantly, envision how this could thrust technology, brands, and whole new industries in years, not decades. At a time when people are hungry for jobs and innovation, now is the perfect time to lean into Lean AI.
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This article first appeared on HACKERNOON.
