AI Investing and its Groundbreaking Impact with Paul Barter

by Mehr Sokhanda 

In a world where technology evolves at an unprecedented pace, Artificial Intelligence (AI) has been transformative in reshaping how we approach not just technological innovation but also investment strategies. There are certain challenges, opportunities, and trends that define the AI investment landscape, crucial for all investors to know while navigating the dynamic field. 

 

To guide us through these complexities, we recently hosted Paul Barter, an expert in AI technologies, at a recent Angel Investing 101 event. Barter is a managing partner of Paul Barter & Associates, providing strategic consulting to firms. Barter is an active startup-advisor and former Entrepreneur in Residence at Altitude Accelerator, where he provided immense strategic and mentoring value to early-stage start-ups. Barter explains that we have moved beyond this AI hype and are now entering a period where AI technologies will be more prominent: 

 

“A lot of us have talked about how it’s been a tough investment environment in the last 18 to 24 months around the world and in Canada specifically, however, the exception is AI. From the middle to the end of last year itself, AI investment grew dramatically- from $14.1 billion to $50 billion, according to Crunchbase. So, there is an exponential curve when it comes to investment in AI in a world where we’re seeing all its different use cases and applications.” 

 

Barter signals the transformative potential of AI technologies, boosting investors’ confidence in a tough financial landscape. He asserts the profound impact that this technology could create for the prevailing economies, “We’re talking trillions of dollars of opportunity, acceleration of GDP growth, the opportunities to skyrocket profitability of business services to solve some of the challenges that governments have with respect to deficits.” 

 

The Role of Generous Purpose Technologies 

Barter underlines an important consideration in the AI investment landscape: “In the development of general purpose technologies, they have become ubiquitous, hence the sweet spot for investment is not necessarily the developers of the technology–it’s everyone else who utilizes these technologies,” suggesting that investors should shift their focus to companies that leverage developing technologies to optimize their firms, which, in turn, would lead to greater returns. He continues, 

 

“…Many of us who talk about AI today talk about the companies that deliver the technologies, such as Google Gemini, but maybe the excitement will quickly shift to how business across the spectrum, from healthcare to energy to the environment, use these technologies to change their businesses going forward.” He also encourages investors to look beyond technology providers and focus on companies that are leveraging AI to transform their industries. This shift in focus from the creators to the implementers underscores a broader range of investment opportunities and highlights the importance of adaptability and strategic foresight in investment decisions. 

 

Strategically Identifying Opportunities for AI 

In recent years, AI has proven to be instrumental in streamlining otherwise complex and labor-intensive processes, transforming them into efficient, automated systems that enhance productivity and reduce costs across various industries. As an investor, it’s important to recognize and act on opportunities where AI can create value, especially in unexpected areas.  

 

“AI is moving at a breakneck speed… but the expectation that only the technologies we see today will win or only the companies that are leading today will win is probably not a good bet.” Barter suggests that the current oligopoly that exists in the tech industry, comprised of companies like Microsoft, Amazon etc., do not restrict the entry and opportunities for up-and-coming entrant to win in this space too.  

 

Barter suggests that investors need to adapt quickly and diversify their strategies to keep pace with AI’s rapid evolution. Investors must broaden their focus beyond market leaders to include emerging technologies and innovators, enhancing ROI potential and reducing risks. Moreover, through reflecting on his own journey with AI investing, Barter emphasizes the need for investors to proactively look for companies providing niche solutions, successfully meeting a pressing industry need.  

 

Understanding and Leveraging AI Trends 

Understanding AI’s key trends and a company’s position on the technology adoption curve is crucial for identifying investments with the highest return potential. 

 

Barter identifies critical sectors such as sales, marketing, software engineering, customer operations, and product development as primary areas where AI can deliver substantial economic gains. A key consideration for investors is how much a company invests in these AI-driven areas. He suggests, “A simple question that you might ask when you’re thinking about investing is what proportion of their employees or their costs are in those categories? And how can we make those people more productive going forward?” This approach not only helps in evaluating potential investment areas but also in strategizing how AI can enhance productivity and accelerate growth to maximize ROI.  

 

Barter also identifies banking, healthcare, telecommunications as key industries that benefit substantially from AI intervention. He illustrates the tremendous scope to automate processes in these sectors to improve services, further stressing the importance of looking at sectors where AI can significantly increase productivity. 

 

Investors must consider the technology adoption curve and how AI integrates with a company’s strategic business objectives. Understanding the pace at which a company adopts and utilizes new technologies is crucial for forecasting its future success in leveraging AI. “What’s important is where companies are on this curve. But it’s also important how quickly they move through the curve,” Barter advises. This perspective is crucial for identifying companies poised to capitalize on AI beyond mere adoption. 

 

Building on that perspective, Barter also introduces the “McKinsey 3 Horizon model” as a framework for investors to understand how competitively the businesses they plan to invest in are engaging with AI technologies. The McKinsey Three Model organizes a company’s growth strategies into three categories: the first horizon focuses on optimizing current core businesses for maximum profitability, the second horizon focuses on developing emerging opportunities that require investment to achieve future profits, and the third horizon focuses on exploring long-term growth ideas like research projects or new ventures. 

“Another thing you should look at as investors in the space of AI is this wonderful framework. The first horizon is stuff in the market that you can use today. The second horizon is something that is coming but not necessarily deployed yet. And the third horizon is this vision of the future. So today, looking at the first horizon, the companies you invest in should be using Microsoft Copilot and the adjacent software; if they are not using the correct tools they are falling behind.” This approach would help investors evaluate whether the companies are headed on the right track and are forward-thinking in their approach to using AI. 

 

Inherent Cybersecurity Risks and Finding Opportunities 

Lastly, when considering AI investing, there are increasing challenges from its pervasive use. However, not all challenges are roadblocks; some present unique opportunities. Barter discusses the inherent cybersecurity risks, impersonation scams and other risks that come with using such technologies. “It’s hard…if, for example, somebody calls you and sounds like your nephew, saying you’re in trouble and they want money. It’s probably not your nephew, right? And so, people are being scammed every day.” This highlights the security vulnerabilities that can be exploited by AI technologies as we progress. 

 

However, Barter also sees these challenges as fertile ground for investment. The security issues underscore the urgent need for advances in cybersecurity solutions, which AI can provide, Hence, this convergence of threat and opportunity AI creates beckons investors to consider investing in companies that develop robust AI solutions, contributing not only to a safer digital world but also positioning themselves to benefit from the lucrative market. Barter expresses, “We need to consider what we can do about this. There are hard problems in the field but also opportunities, which is why I like to be a bettor in this space.” 

 

Overall, as we explore the landscape of AI investing, through Barter’s insights and critical reflection, it’s evident that AI is reshaping investment strategies globally. It not only drives growth across sectors but also opens new avenues of opportunity. Investors should focus on understanding each company’s integration of AI with their strategic objectives. Ultimately, this would help in making informed decisions that balance immediate gains with long-term transformative potential, ensuring investments are both profitable and forward-looking. 

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ABOUT: Mehr Sokhanda is a researcher and writer with Altitude Accelerator, a non-profit innovation hub and business incubator which provides programs to help founders grow and scale. Mehr is currently pursuing her undergraduate degree at the University of Toronto in Economics and Communication, Culture, Information & Technology.

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