The venture capital (VC) business is often described as a high stakes form of gambling. And right now, it seems nobody’s in the mood for betting much of anything.
Indeed, as the COVID-19 outbreak and the ongoing social distancing has frozen much of the American economy in place, uncertainty reigns. It’s natural for VCs to either become paralyzed or start pulling back any potential investments.
I understand these instincts. But what if I told you that a technology exists to make betting on startups safer and smarter than ever. Essentially VCs could have access to better odds and inside information – the kind of information that gamblers crave.
I’d argue that given that kind of advantage, now would be the ideal time to aggressively place bets while the rest of the market is panicking. This isn’t just theoretical.
An emerging form of artificial intelligence (AI) could dramatically alter the practice of venture capital investment, a business that has largely been driven by a combination of gut and analytics.
The vision is that VCs would be able to identify startups that were predisposed to succeed, and that founders could skip their growing pains right off the bat.
It’s intriguing to imagine how that might change the investment world, especially with the coronavirus crisis taking a toll on the global economy. It’s even more fun to speculate how that could better foster American innovation, or even accelerate the advance of technology in society and business.
These are lofty dreams. Yet that’s exactly the promise of Lean AI – a potentially revolutionary tool in the world of venture capital.
If you think about the typical tech startup, or even a cutting-edge consumer brand – both would pride themselves on being data-driven, and highly efficient when it comes to acquiring customers.
Any company launching in 2020 would pride itself on being laser focused on managing its key performance indicators – pulling every lever to bring down their cost per whatever matters.
They’d boast of running hundreds, if not thousands of A/B tests in an effort to get their message or product right.
And if things aren’t working, they try a different marketing tactic or sales channel fast. If things really aren’t working they pivot the entire business model or offering – without hesitation.
Moving fast and breaking things is a startup religion – and it’s often celebrated as being ruthlessly efficient compared to the plodding nature of legacy companies.
Eventually, most startups get there – to something resembling a viable business model. Maybe even a fast growing one. And they feel good about what they see is a disciplined, prudent process in getting there.
Yet in most cases, the process costs a lot of time and money. There’s a reason it’s called a burn rate after all.
And given the state of the economy right now, few companies will be able to tolerate this kind of undisciplined approach. Post Corona, it’s hard to see the always-pivoting-startup being seen in the same light.
Proponents of Lean AI ask – what if we could skip all that? What if a startup could ‘know’ its business model and operating costs right away, without having to hire tons of people to figure all that stuff out?
Just imagine if a VC could pick and choose which startups don’t need to pivot this way and that, and don’t have to blow through gobs of cash and loads of hiring.
Impossible, you might think. Some things just require trial and error. Except that machines don’t.
We are seeing an emerging form of AI that can solve these problems. We’re not talking about massive, change-the-world AI (like robots that take over all of our jobs). We’ll get there someday.
For now, we’re talking about a lean form of AI that can be designed to help startups blaze through their trial periods.
This kind of AI can run through scenarios, figure out marketing costs and supply chains thresholds. Instead of founders pouring over spreadsheets or playing around with real time media dashboards, machines can use uber efficient algorithms.
Algos always win. And founders can start running their companies with higher predictable odds to become the next tech startup unicorn.
Just imagine the great companies we’d discover. More importantly, try to envision how this could thrust technology and brands and whole new industries in years, not decades.
At a time when people will be hungry for jobs and innovation, now is the perfect time to lean into Lean AI.
Lomit Patel is the Vice President of Growth at IMVU. Prior to IMVU, Lomit managed growth at early-stage startups including Roku (IPO), TrustedID (acquired by Equifax), Texture (acquired. by Apple) and EarthLink. Lomit is a public speaker, author, advisor, and recognized as a Mobile Hero by Liftoff. Lomit’s new book Lean AI, is part of Eric Ries’ best-selling “The Lean Startup” series, now available at Amazon.
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