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Venture Capital and financial institutions to rely less on “gut feeling” and more on AI

Artificial intelligence will move from being a business buzzword to a must-have for venture capital companies, banks, and financial institutions in general

By 2025, over 75% of VC and early-stage investor executive reviews will be informed using AI Current AI technology is already capable of providing insights into customer desires and predicting future behavior Chatbots and voice assistants will make it easier to complete accounting tasks

Artificial intelligence will move from being a business buzzword to a must-have for venture capital companies, banks, and financial institutions in general.

It’s already in use today.

Many large VC funds use AI to support their investment decisions. 

Bill Maris, the former managing partner at Google Ventures, once said that when you “have access to the world’s largest data sets … it would be foolish to just go out and make gut investments.”

By 2025, more than 75% of venture capital (VC) and early-stage investor executive reviews will be informed using artificial intelligence (AI) and data analytics, according to Gartner, Inc.

“Successful investors have the ability to make sound financial decisions from mostly qualitative information alongside the quantitative data,” said Patrick Stakenas, senior research director at Gartner. 

“However, this ‘impossible to quantify inner voice’ grown from personal experience is decreasingly playing a role in investment decision making and will shift by 2025 as VC and private equity (PE) investors turn to leverage AI and data science insights for due diligence.”

AI market share

Currently, AI technology holds a global market value of over $30 billion. It’s forecasted that the global AI market will grow rapidly in the coming years, reaching up to $126 billion by 2025.  

In Fintech alone, the use of AI in 2019 reached an estimated value of $6.67 bn and is expected to grow over $22.6 bn in just five years. The fintech market also expects a growth rate of 23.37% until 2025. 

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A shift in investing strategy

Gartner predicts that by 2025, the AI- and data-science-equipped VC or PE investor will become commonplace, rapidly shifting the early-stage venture investing strategy away from ‘gut feeling’ and qualitative decision-making to a more modern platform-based quantitative process. 

Information gathered from sources such as LinkedIn, PitchBook, Crunchbase, and Owler, along with third-party data marketplaces, can be leveraged alongside diverse past and current investments.

“This data is increasingly being used to build sophisticated models that can better determine the viability, strategy, and potential outcome of an investment in a short amount of time. Questions such as when to invest, where to invest, and how much to invest are becoming almost automated,” said Stakenas.

AI will pick leadership teams 

Current AI technology is already capable of providing insights into customer desires and predicting future behavior. Unique profiles can be built with little to no human input, which can be further developed via natural language processing AI that can determine qualities about an individual from real-time or audio recordings.

By 2025, investment organizations will be leveraging the technology to determine which leadership teams are most likely to succeed based on employment history, field expertise, and previous business success. 

AI can transform the finance function

Gerhard Hartman, Vice President, Medium Business, Sage Africa & Middle East said that the scope of the chief financial officer (CFO) has expanded beyond that of a traditional gatekeeper to financial resources.

Financial leaders are increasingly eager to automate and digitize accounting processes to save time and gain better visibility into business performance.

Following the implementation of cloud-based solutions, businesses have their sights set on AI.

Hartman gives the below examples of how AI can transform the finance function within the next decade:

Continuous accounting

AI could help usher in a world where the books are always ready for reporting and will help scrub and review data, feeding systems with accurate information in real-time.

Automation of routine processes

AI, along with other intelligent technologies such as robotic process automation (RPA) can automate more of the routine operational tasks. These technologies can, for instance, streamline processes like capturing invoices, generating expense reports, and logging payment transactions.

Conversational AI and bots

Chatbots and voice assistants will make it easier to complete accounting tasks without needing to interact with a computer interface and could enable access to financial data and systems for more people in the business.

Fraud and anomaly detection

Sophisticated algorithms can comb data in real-time to identify patterns and flag anything that might be amiss.  

Big data analysis

With large volumes of rich data flowing through an organization, AI can sort information and find patterns that a human employee could miss.  

“Over the next 10 years, we can expect the finance function to change dramatically, where AI will become one of the most important tools to driving business efficiency and success,” said Hartman.