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AI – a paradigm shift for start-ups, and investors

David Mott

Every decade or so, a new profound technology changes the landscape for start-ups and investors. AI offers new opportunities. 

The capital cost of creating start-ups was transformed with the introduction of cloud computing technologies by Google and Amazon Web Services. When we founded Oxford Capital in 1999, seed stage investments were often poured into buying servers. I recall the constant buzzing sound from our server cabinet in the corner of the office. Since these machines were silenced, founders have been able to buy computing power and storage as their businesses have grown and are able to respond to demand almost instantly with a few clicks of a mouse. 

We have been investing and AI and Machine Learning technologies for many years, but the recent introduction and accessibility of large language models (LLMs) has created a smorgasbord of productivity tools, specialist services and efficiency opportunities that founders and their teams can access for free or at low cost. Every founder we meet today is harnessing AI in one way or another and over the coming months and years, we will see AI being integrated into the applications that we use everyday, increasing our productivity, dealing with our more mundane tasks and opening up new possibilities. 

This is leading to a radical shift in the cost of starting and operating a business. On one hand, this means the capital required to reach milestones and proof points can be lower. On the other if allows founders to go further with the same level of capital injection and concentrate more on their core value driver. 

And for investors, it means that value can be achieved through capital efficient growth. Start-ups can progress from Seed to Series A and from Series A to B with less capital or faster. In turn, early investors suffer less dilution and retain greater ownership. This is good for returns. 

Consider the engineering team. Developers today can use AI co-pilots to write code faster. CTOs are reporting efficiency gains of 20-500%. Two years ago, our portfolio founders were screaming for engineering talent. While the hunt for top talent is ever-present, AI has undoubtedly eased the pressure in many teams. 

Streamline operations through automation. The most commonly used software programmes in the start-up stack have pushed out upgrades that automate repetitive tasks and remove many human-led processes. AI-driven automation allows start-ups to optimise workflows, reduce manual errors, and enhance overall operational efficiency. From data entry to customer service, teams can concentrate more resources to strategic, innovative and creative endeavours. 

Personalised and scalable customer service. From the prospect stage through to long term relationship management, AI can help deliver insights and service to customers. By analysing past interactions, timing, preferences, start-ups can leverage AI tools to deliver a tailored product or service that meets the needs of customers, leading to greater brand loyalty and better experiences. Automating customer service for dealing with the 80% of simple queries, leaves client-focused teams more time to focus on the 20% higher value activities. 

Better return on investment in marketing. The founder of Macy’s is credited with saying ‘I have wasted half my advertising budget. The problem is that I don’t know which half.’ In the digital age, this is no longer the case as clicks and movements of a mouse are tracked with frightening precision. And with AI, new marketing solutions are revolutionising how start-ups reach their target audiences. By analysing vast data sets, AI identifies consumer trends, tailors marketing strategies to specific demographics, and optimises advertising campaigns for maximum impact. This data-driven approach not only enhances the effectiveness of marketing efforts but also ensures that every pound spent delivers tangible results. 

Decision making informed by vast data sets. By incorporating AI data insights into decision making companies can make more informed decisions about product or strategy, identify market trends, predict customer behaviour, speed up software code, screen candidates for a new role or optimise supply chain management. AI can transform raw data into valuable insights and analytics.  

Humans still matter. We’ve seen the scary headlines claiming that our jobs will be replaced by AI. Through my career as an investment manager over the 25 years, I have seen many new technologies threaten the status quo and I have learned to embrace it. We humans are incredibly creative, resilient and able to adapt. With new AI tools, our lives may change. Often it will be for the better and we will be able to devote our skills, knowledge and passions to new endeavours. 

And so does the planet… The environmental impact of this new wave of AI offers both threats and opportunities. The servers behind this level of technology all need power and cooling, and demand being demonstrated today on Nvidia chips is a sign of the environmental threat that may lie ahead. In a world where global warming is already a huge issue, we are seeing a new wave of start-ups using AI to accelerate innovation and find new solutions to mitigate the environmental impact too. 

The enterprise economy is changing with the mass adoption of AI technologies. I foresee a new wave of start-ups with the drive and ambition to build great companies faster than ever. And I believe that this is good for both founders and investors.

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