The first thing to evaluate when considering an AI company to invest in is the technology they are developing. It is important to understand what the technology does, how it works, and what problems it solves. The technology should also be differentiated from other solutions in the market. A company developing cutting-edge AI technology that solves a unique problem is more likely to be a good investment than a company working on me-too solutions.
The second thing to evaluate is the target market for the AI company's technology. The size of the addressable market and the company's go-to-market strategy are two important factors to consider. A company with a large addressable market and a sound go-to-market strategy is more likely to be a good investment than a company with a small addressable market or no clear plan for how to reach its target customers.
The third thing to evaluate when considering an AI company to invest in is the management team. It is important to assess the experience of the management team and their ability to execute the company's business plan. A company with an experienced management team that has a proven track record of executing its vision is more likely to be a good investment than a company with an inexperienced management team or no clear plan for how to achieve its goals.
Sample startup analysis: NPCx
What does NPCx do:
NPCx is a startup that has developed an artificial intelligence technology that can identify and track non-player characters (NPCs) in video games. They are currently raising on Republic.
How does it work?
NPCx's technology uses computer vision and machine learning algorithms to detect NPCs in video games. The technology is designed to work with any video game, regardless of platform or graphics engine.
What problem does it solve?
NPCx's technology solves the problem of identifying and tracking NPCs in video games. This is important for game developers, as it allows them to create more realistic and believable worlds for players to explore.
What is the size of the addressable market?
The addressable market for NPCx's technology is the $100B+ video game industry.
What is the company's go-to-market strategy?
NPCx plans to license its technology to game developers. The company has already secured deals with several major game developers and plans to continue signing new customers in the future.
Analyzing the Management Team.
This is probably the biggest weakness of the NPCx. If you look closely their Lead Software Engineer has almost no work experience other than working on NPCx, per his LinkedIn profile. Their Chief Marketing Manager is currently looking for a job. Based on this it is really hard to imagine that the technology that NPCx has built will be great or it will be better than tech developed by numerous better-funded competitors.
Animations for gaming is a very crowded market. There are multiple players developing similar solutions. NPCx has no clear differentiator. It seems like their main competitive edge is their ability to sell as their team has extensive connections in the gaming world. However, in the long term, the quality of the product is what helps companies win against the competition, not the ability to sell better than others.
NPCx generated a revenue of around $250k in 2021. However, the revenue is mainly concentrated on one customer. Most likely, a customer came from a personal connection that NPCx's team had. It is to be determined whether NPCx will be able to find a scalable customer acquisition strategy. Taking into account that their product is mediocre and their engineering team has a mediocre background as well, to be honest, we do not believe that NPCx will be able to scale up its sales to a projected ~$20M in 2025.
Alternative investment options
If you are looking to invest in an AI company, we would recommend considering companies with more experienced management teams and a clear competitive edge. There are many other companies that offer similar solutions to NPCx, but have a clearer vision for how to execute on their business plan. For example, GenesisAI which is currently raising on Netcapital is building a global AI marketplace. They already have around 2,000 registered users and are generating revenue. Most importantly, their team has a substantial background in AI (the CEO founded an AI startup before whilst the Chief Scientist did a Ph.D. at Harvard). In addition, they have proven their ability to build a great product.
NPCx is a gaming AI company that is raising on Republic. The company has a weak engineering team and no clear competitive edge. We do not recommend investing in NPCx. We recommend investing in companies like GenesisAI which have:
- A proven track record in AI
- A clear competitive edge
- An experienced management team
In general, when looking to invest in AI companies we recommend looking at the quality of the team, traction, product, and market.
Disclaimer: The information in this write-up is provided for informational purposes only and should not be construed as an offer or solicitation to buy or sell any securities. Please consult with your own financial advisor before making any investment decisions. Thank you.