AI-Powered Ventures: Transforming the Startup and VC Landscape

Startups leveraging artificial intelligence (AI) are rapidly innovating, scaling, and disrupting their industries, capturing the interest of venture capital firms eager to invest in this high-growth market. As demonstrated by substantial investments in AI startups such as OpenAI, Hugging Face, and H2O.ai, the AI sector is seen as a key driver of future success. To secure funding in this competitive landscape, startups are advised to not lean solely on technology itself, but on the problems it solves and the efficiencies it creates.

AI offers startups powerful real-time analysis capabilities, enabling them to swiftly identify and respond to emerging market needs. This agility allows companies to adapt their offerings and strategies on the fly, giving them a competitive edge in rapidly changing industries. Venture capital (VC) investors are drawn to this potential, recognizing the opportunity to back the next market winners poised for rapid growth and disruptive innovation. By investing in AI-driven startups, investors hope to capitalize on these businesses' ability to harness data and technology to stay ahead of market trends and consumer demands.

Antonia Rojas, Co-Founder and Managing Partner, Attom Capital, considers 2021 a glorious year for the tech world and at the same time catastrophic, as companies boasted about how many people worked for them. Now, the paradigm has shifted to how they can improve those efficiencies with technology. She associated some of the tech layoffs with the implementation of newer technologies. “As VCs considering entering a new company, we should ask how they are implementing these technologies to save time and create more value. We need to go a step further and demonstrate that the company teaches employees how to use the available tools to become more efficient,” she adds.

The adoption of AI in Mexico is on the rise, as the country ranks fifth in Latin America for enterprise AI implementation according to recent studies by Dell and other technology firms. AI is being integrated across various sectors, including government, enterprise, education, and startups. María Fernanda González, Principal, Hi Ventures, says that one of the main questions that might arise among entrepreneurs is how this technology affects the way a company is evaluated, potentially requiring the application of a new investment thesis.

While this technology offers several opportunities, experts suggest that companies seeking capital cannot base their pitches on AI, suggesting that the investment thesis might have not changed significantly. Rafa de Haro, Co-Founder and Managing Partner, Cometa, stresses that the correct strategy for raising capital has not changed. According to him, companies need to avoid falling for all the hype around AI, instead focusing on understanding their business model well. “AI is just a tool, not a product to sell. Back to basics, if you have an innovative solution and business model, it means you have competitive advantages on the talent side,” he added.

Data management and preparation, model training, and personalization are the main challenges AI faces for its effective implementation within the Mexican business landscape. Likewise, the efficient management of large volumes of data and adequate training of personnel are crucial for the success of AI in Mexican companies. Juan Franck, Managing Partner, SoftBank, highlights that the effectiveness of AI hinges on the quality of the information it receives. He notes that information is readily available and transparent in developed markets, offering equal access to all platforms. This accessibility not only creates investment opportunities but also underscores the importance of talent and its contextual understanding.

“Information in LATAM is harder to come by, so platforms that can consolidate this information and provide contextual insights will offer interesting opportunities,” he says.

Alejandro Diez Barroso, Managing Partner, DILA Capital, says that artificial intelligence can also benefit VCs in streamlining processes. He mentioned that they follow a traditional approach, providing a detailed investment memorandum for each company they are interested in. “On average, analysts took 24 hours to draft these documents. However, with AI, they now complete the same task in just 30 minutes,” he exemplified.