Amber Nigam, CEO and cofounder of basys.ai, a Harvard-based company utilizing generative AI to streamline prior authorization for health plans, is at the forefront of the explosive growth and potential of artificial intelligence. However, with the increasing hype surrounding AI, investors are finding it challenging to distinguish truly innovative startups from those simply riding the wave.
In the AI race, startups must focus on solving unique problems that align with AI’s strengths and differentiate through domain expertise, proprietary data, and innovative approaches. By going beyond surface-level applications of AI, startups can build enduring businesses that are not merely vulnerable to the next big model release.
To evaluate AI startups effectively, investors should consider whether they are tackling problems that are well-suited to the capabilities of AI. Deep understanding of the target market and the ability to articulate how the AI solution solves specific real-world problems are indicators of a startup’s potential for success.
Successful startups differentiate beyond just plugging into off-the-shelf models by developing proprietary datasets, innovative prompt engineering techniques, robust infrastructure for continuous improvement, and vertical integration tailored to specific industry workflows. Startups that employ an ensemble approach by combining multiple models and techniques are more resilient and adaptable to changing market conditions.
While some of the largest opportunities in AI may be in startups using AI to enable previously infeasible business models, it is essential to deeply understand both the industry and how AI can uniquely solve its challenges. Investors should look for founders with industry expertise, large and growing addressable markets, unique and defensible advantages, capital efficiency, strong early customer traction, and revenue growth.
As the legal and regulatory landscape around AI evolves, startups must be agile and adaptive to navigate any resulting changes in the market. By closely monitoring developments and considering their potential impact on AI startups, investors can identify the companies that will truly shape the future. Ultimately, investors should go beyond the hype to rigorously evaluate a startup’s technical differentiation, business model innovation, and industry-specific value proposition to back companies that will build real value in the AI space.
