Investing In AI: Leading VCs Share 10 Green Lights And 10 Things That Send Them Running

At Alumni Ventures, we are one of the top investors in the sector and have a dedicated AI Fund. We have developed a list of the top 10 things we look for in AI companies, plus 10 red flags that send us running. In this piece, we also talk about 5 specific start-ups we love.

10 GREEN LIGHTS THAT VCs LOOK FOR

1. Fix-It Mindset

When evaluating startups, a key question is whether the venture addresses a significant, real-world problem. Successful startups must identify pressing issues affecting individuals, communities, or industries and then solve them with innovative solutions. So when we search for investments in AI, we’re seeking startups leveraging this tool for problem-solving — whether that’s in data analysis, content creation, predictive modeling, image and speech recognition, optimization, personalization, etc. For example, one major problem is that the demand for data and computing power to support AI and Large Language Models (LLMs) is expected to surge by 200x in the next two years. AV’s portfolio company Enfabrica is tackling that by developing networking chips, systems, and software tailored for AI computing tasks. By leveraging Enfabrica’s chips, companies can reduce AI cluster costs by 50% while also enhancing scalability (10-fold), bandwidth (2-fold), and data speeds (75%).

2. Are You Really Using AI?

As the number of AI startups explodes, VCs have also seen the rise of wanna-bes using AI buzzwords and sporting “dot-ai” domain names. While the term “AI” is increasingly common, its precise meaning remains elusive. It’s an umbrella term covering various mathematical approaches to simulate intelligent behaviors. As an example: Companies claiming they’re AI-centric when basically indexing data are misusing the term. Indexing is a fundamental function performed by conventional software that has existed for decades. So evaluating AI startups means first assessing whether they genuinely incorporate AI or employ the term as a marketing ploy.

How We’re Involved

Green D Ventures (for the Dartmouth community) sponsored our investment in Unstructured’s $25 million Series A led by Madrona Ventures. This opportunity was a strong match for Green D, as Unstructured Founder and CEO Brian Raymond earned his MBA from Dartmouth’s Tuck School of Business. Our investing teams regularly leverage their alumni connections to build relationships with entrepreneurs and VCs.

Other Alumni Ventures funds invested in the round include Arbor Street Ventures (for the Michigan community), Expo Ventures (for the USC community), and The Yard Ventures (for the Harvard community), as well as AV’s AI Fund and Total Access Fund. Other co-investors include Bain Capital Ventures, M12 Ventures, Mango Capital, MongoDB Ventures, and Shield Capital.