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HomeTechInvestors are turning to AI-led dealmaking to gain an edge over rivals

Investors are turning to AI-led dealmaking to gain an edge over rivals


Venture capital funds, private equity groups and accounting firms use the latest artificial intelligence to choose acquisition targets and investment start-ups, betting that the technology can give them an edge over rivals.

Big Four accountant KPMG, hedge fund Coatue and venture capital firm Headline are among those using the latest AI tools to advise clients and guide their dealmaking.

With investors under pressure to identify the next high-growth startup at a time when few companies go public, some argue that dealmakers could benefit from using generative AI for tasks such as assessing the growth potential of a company. a business based on financial analysis.

“If you can train or use a model that gets a lot of efficiency first, you get an advantage in that particular part of the business that is more difficult for a second mover,” says Pär Edin, who leads innovation at KPMG’s US. deal advisory and strategy business. “It’s about getting there first for each specific use case.”

The pace of artificial intelligence development over the past six months, triggered by the release of OpenAI’s popular ChatGPT – a chatbot that provides human answers to questions – has prompted investors to use the tools to identify high-growth companies and acquisition targets.

KPMG has used the technology behind ChatGPT to create a system based on its own data to help advise its staff. The company said the tool had seen a lot of use over the month it was up and running, adding that recent advances in AI had made it “practically useful”. . . especially in M&A”.

Coatue’s software, Coatue Brain, integrates generative AI into its data platforms, using the technology to sift through sales research, revenue transcripts and pitch decks to extract key points and summarize them into clear and concise briefings.

PitchBook’s AI-driven “VC exit predictor” evaluates how likely a company is to go public or be acquired. The data provider claimed that the two-month-old tool had a 75 percent accuracy rate.

Meanwhile, venture capital firms Headline and Moonfire Ventures have used generative AI to assess and compare investment targets based on measures such as web traffic and new users, in order to isolate those with the greatest growth potential.

Partners can then target thousands instead of millions of companies, according to Headline. The VC firm added that it had invested in some companies, such as password management service Bitwarden, largely on the recommendation of its AI.

The increased use of AI in investments has raised questions about the traditional roles of human relationships and judgment in the industry. Industry analyst group Gartner has estimated that AI and data analytics will support more than three-quarters of venture capital and early stage investments by 2025.

“We don’t think it compromises the traditional role of a VC,” said Mathias Schilling, one of Headline’s founders. “The whole concept is a copilot; it makes us much smarter when we work with a company.”

London-based Moonfire said it used AI to rate about 50,000 companies each week, evaluating, for example, a founder’s experience and potential for return on investment. The company leveraged its algorithm to discover and support UK fintech LiveFlow, leading to a $3.5 million seed raise.

“We are seeing a significant improvement in our algorithms from what has happened over the past four months,” said Mattias Ljungman, the founder of Moonfire, who also co-founded European venture capital firm Atomico.

Moonfire tries to reduce potential algorithmic bias by creating rules so that AI cannot take certain characteristics, such as gender, into account when evaluating company founders.

But Anne Glover, CEO of venture capital firm Amadeus Capital Partners, said generative AI nevertheless tended to be biased, adding that the tools used limited and historical data.

“It’s impossible to assume that you should be making those kinds of human decisions based on what an AI is doing,” Glover said. “For someone like us, where we invest on the cutting edge, not much has been written about what we’re looking for.”

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