Opinion: Why I don’t invest in AI

Photo credit: John Williams / 123RF

This article is part of Tech in Asia’s partnership with Monk’s Hill Ventures where we publish articles that feature the firm’s valuable insights. For more articles in this series, go here.

Last year, AI companies attracted more than US$10.8 billion in funding from venture capitalists like me. AI has the ability to enable smarter decision making. It allows entrepreneurs and innovators to create products of great value to the customer. So, why do I not focus on investing in AI?

During the AI boom in the 1980s, the field enjoyed a great deal of hype and rapid investment. Rather than considering the value of individual startup ideas, investors were looking for interesting technologies to fund. This is why most of the first generation of AI companies have already disappeared. Companies like Symbolics, Intellicorp, and Gensym have all transformed or gone defunct.

And here we are again, nearly 40 years later, facing the same issues.

Though the technology is more sophisticated today, one fundamental truth remains: AI does not intrinsically create consumer value. This is why I don’t invest in AI or “deep tech.”

The problem with investing in AI verticals

Since 2000, there has been a six-fold increase of venture capital investment in AI. The number of active AI startups has followed suit, growing 14x in the same amount of time.

But the capabilities of AI are often over-promised and over-hyped—and the domains AI startups are targeting could be more impactful. Do we really need a WordPress page developed by AI?

By focusing on the technology, deep tech verticals (such as AI or blockchain-only startups) are ignoring the most commercially valuable part of a startup: What problem are they solving? What deep value are they creating?

Many startups are getting caught in the hype.

Pitched as an “AI tailor,” Original Stitch claimed it was able to deliver tailored shirts by using computer-vision software to analyze photos uploaded to the company’s website. The company generated US$5 million in big-name investments. Unfortunately, the shirts produced using their own AI were poorly fitted—many were made too tight or the sleeves were too long—and the company ultimately had to ask customers to submit their shirt sizes.

I believe that, one day, our shirts will be better custom tailored by machines. AI-powered or not does not concern me—what I care about is a well-fitted shirt. Though developments and breakthroughs continue, AI systems are far from perfect. And if a startup cannot create value with deep tech or significant technology, the product itself may not be necessary.

That’s why I choose to invest in companies that leverage AI to deliver deep value to their customers.

Future proofing: Focus on creating deep value

Today, calling your company an AI startup is one of the quickest ways to signify that you are a forward-thinking, commercially sustainable company. But being future-proof doesn’t necessarily mean having futuristic technology; in fact, having a good business model with humble everyday technology is often more sustainable in the long term.

Deep tech becoming standard in the future