Artificial Intelligence, or AI, has become the buzzword of choice in the tech world. And beyond the hype, AI has already been a game-changer in many industries, from education to e-commerce, and has the potential to revolutionize even more. This has led to an influx of startups claiming to be at the forefront of this technological wave. But with so much noise, how do executives determine which projects are worth the money and effort?
To help bring more clarity to the topic, I recently sat down with Oleg Netepenko. He is Founder and Managing Partner at Flintera, a startup studio with a private equity arm. His past experience includes co-founding the early-stage VC firm Flint Capital. And according to Netepenko, there are three types of companies that hold the most promise. The first is what he calls “shovel sellers.”
The Shovel Sellers
“AI providers really stand to benefit the most from this gold rush,” said Netepenko. “These are the companies that offer the tools and technologies needed to implement AI solutions. This includes software providers and even hardware manufacturers like NVIDIA, which is creating GPUs specifically designed for AI workloads.”
As a side note, demand for NVIDIA’s AI chips has skyrocketed the company to a market cap of close to $1 trillion. Another good example of a shovel seller is OpenAI and its ChatGPT technology. Companies at all stages are infusing ChatGPT technology into their product offering, and some are even securing funding based on that. SOCI recently landed $120 million to further its partnership with OpenAI and other machine learning providers.
“One of the most significant benefits of shovel sellers is that they make AI accessible to businesses of all sizes,” highlighted Netepenko. “In the past, implementing AI solutions required significant investment in infrastructure, talent, and resources. Today, AI providers offer scalable and cost-effective solutions that can be tailored to the needs of all businesses.”
Hugging Face is a good example. The company provides pre-trained models for natural language processing that are accessible via an API. This makes it easy for businesses to integrate AI capabilities into their existing applications without any significant investment.
Companies That Can Continue to Scale With AI
Another group that will benefit from the AI boom is companies with an existing audience or data.
“Companies that already have a captive audience or extensive data will get a significant boost with AI implementation efforts,” said Netepenko. “Implementing AI over existing data provides substantial leverage that can help make existing products stickier and generate more revenue. And with AI, these companies can even anticipate their customers’ needs and tailor their offerings accordingly.”
For example, Adobe is using AI to radically improve PhotoShop. Now, even those with very little design experience can do fantastic things with it. Duolingo is another example. The popular platform that helps people learn new languages is using AI to give millions of their users the ability to have conversational practice.
Netepenko added that “evaluating projects in this category should involve analysis of their current market position and growth prospects and the possibility of staying ahead of competitors. Executives should also have a firm understanding of the market and industry the potential project is competing in.”
Another potential winner of the AI gold rush will be companies that are able to monetize AI successfully and create entirely new business models using it.
Newborn Companies
“One way to monetize AI is by providing AI-enabled services such as chatbots that help businesses handle customer inquiries, schedule appointments and make online orders, among others,” says Netepenko. “These same chatbots could then be used to reach out to customers with personalized messages and product recommendations.”
A good example of this is Chorus.ai, which leverages natural language processing (NLP) to understand and gain insights from sales calls. Chorus.ai imports conversation data from platforms such as Zoom and Webex, and identifies the most critical parts of the discussion in real-time, then stores them. This allows businesses to easily review and analyze all sales call data, which ultimately helps them make data-driven decisions.
However, many of these types of newborn AI startups are based on pre-built AI services. And since AI is not an advantage in and of itself in this category, executives will have to evaluate the business based on that. Netepenko then explained that this is another reason shovel sellers are more favorable. They own the technology, and not everybody can run deep tech companies – hence less competition.
He added, “In my opinion, startups that use already-made AI infrastructure have the most risk,” said Netepenko. In these cases, AI is not an advantage because everybody can access the same API. Therefore, it’s wise to evaluate these companies very closely, as the success rate in this category will be much lower.”
Netepenko isn’t completely against making investments in this category though. He went on to say that “On the other hand, if you manage to pick a gem, there will be much bigger returns. So it depends on your risk profile. Those with moderate risk appetite should go for shovel sellers and companies that can scale. But if they want to test their luck, or have experience in picking good early-stage startups, then this option is for them.”
The Future of AI
When it comes to AI’s impact on our lives, Netepenko has an optimistic view.
“From a technological viewpoint, AI is set to transform every aspect of our lives,” he said. “AI is already making breakthroughs in healthcare, drug discovery, finance, transportation, and education. For instance, AI-powered medical diagnosis can help in the early detection of diseases, which could save hundreds of thousands of lives. Similarly, AI-enabled virtual personal assistants can schedule appointments, remind us of important tasks, and even perform online shopping, leaving us with plenty of time to focus on more important things.”
However, Netepenko acknowledges that there are social implications that need to be kept in mind.
“One of the most pressing concerns right now is job displacement,” said Netepenko. “This is especially true for IT-connected workers, like designers, programmers, testers, and even copywriters. Drivers, pilots, and agricultural machine operators are at increased risk as well. The manual trades, like plumbing, have less risk. But regardless, reskilling and upskilling will be critical for many in the workforce.”
This raises questions about how humans will make a living, maintain their standard of living, and how they will adapt to a world where they are no longer needed in certain jobs. Another issue is the ethics of AI. While AI is great at making complex decisions and analyzing large amounts of data, it lacks the empathy and moral judgment that humans possess. Therefore, executives must also look at the social and ethical implications of their AI investments, particularly related to privacy, safety, and the impact on human autonomy.
“Many fear that without proper oversight in place, AI can be used for malevolent purposes,” says Netepenko. “This fear could undermine society’s trust in this technology. And with fear comes more regulation, more expense, and more risk. This is a variable that also needs to be factored into the equation.”
Final Thoughts
Netepenko’s final piece of advice is that no matter if it’s a shovel seller, existing company, or newborn that executives are looking at, they shouldn’t rush into the AI-feeding frenzy.
“You cannot go on hype alone; look at what happened with the metaverse,” he added. “I’m not saying that AI is not worth the time and money, but it will take time for us to see the full potential of this technology. And executives shouldn’t overvalue a company or technology simply because it somehow uses AI.”
In other words, it’s wise to closely evaluate the demand for infrastructure in the short and long term, the scalability of a company’s product, and the strength of its AI technology.
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