An estimated 3,200 private venture-backed companies went out of business in 2023 across the globe, The New York Times reported late last year, stung by rising interest rates and investor demands for a more clear path to growth.
However, just seven months later, the same outlet reported that investors injected $27.1 billion into U.S. artificial intelligence startups in just the months from April through June. This funding accounted for nearly half of all U.S. startups during that period.
“The level of turmoil for new VCs and new tech startups has been absolutely game changing since 2022,” said Shu Dar Yao, Founder and Managing Partner at Lucid Capitalism and moderator of a panel discussion on AI at the Robert F. Kennedy Human Rights Compass Summer Investors Conference. “One of the only bright spots has been generative AI.”
While there are exciting opportunities in disruptive technologies, investors should also ask hard questions about risk, including the AI hype cycle, societal impacts, job disruptions, and the challenges of conducting due diligence on AI startups with high valuations.
Mike Kubzansky, CEO of Omidyar Network, noted that generative AI could enhance economic growth and worker productivity, but “what we have not figured out is how to share the benefits of the technology.”
“The data itself has its own biases,” said Scott Pittman, Senior Vice President and Chief Investment Officer at Mount Sinai Health System. “There’s an intentionality to make sure that we’re not losing the diversity of thought within AI’s application.”
Investors have been dissuaded from asking tough questions, having been told AI systems are too complex to understand. Kubzansky challenges this perspective: “I just want to say to investors that is not true. You’ve all figured out much harder things in your lives, and so I would not use that as a deterrent to engage with your GPs and to engage in your holdings.”
Parasvil Patel, a partner at Radical Ventures, believes that AI will significantly impact almost every industry in the long term. Despite high interest in the technology, Radical Ventures includes a clause in their term sheets asking their portfolio companies to adopt a policy for the ethical use of AI.
The venture capital firm also open-sourced a Responsible AI for Startups framework for others to use. It is a risk-based approach to help organizations think through the social, ethical, regulatory, and technical risks that exist when leveraging this technology.
“We use that in our investment process,” said Patel, who encourages others to think similarly.
Panel speakers say businesses are still in the early stages of sorting out the impact of AI, on how much it will disrupt jobs and add to economic productivity. More recently, observers seem to think the pace of change may have exceeded expectations, with some on Wall Street cooling on the hype. But regardless of how fast and how disruptive AI is, businesses should work to ensure the good actors greatly outnumber those that have more nefarious intentions for the technology. Our Business and Human Rights team continues to work with investors to promote the responsible development and deployment of technology through events and other programming like our 2023 Fall Summit on AI, Ethics, and Investments.
The 2024 RFK Summer Compass Investors Conference was held from June 10-13 in Chatham and Hyannis Port. The 2025 Compass Conference will be held on June 9-12 at the Chatham Bars Inn.