Navigating AI investment risks and opportunities in venture capital

November 2024

The public release of ChatGPT in late 2022 spurred a substantial increase in investor interest and capital deployed into artificial intelligence (“AI”) startups.

The excitement surrounding AI has clearly impacted the public equity markets, with the ballooning value of chip-maker NVIDIA as the prime example. The tremendous perceived opportunity in AI has also driven a massive – and wellpublicized – inflow of venture capital (“VC”) funding in the private markets. Some of this deal activity has already generated outsized returns for VCs that have been investing in AI companies and are now posting material (albeit, largely unrealized) gains from rising valuations.

This paper seeks to address both the future opportunities and potential risks posed by AI within investors’ VC portfolios. We initially highlight a host of areas where VC investments in existing or yet-to-be-founded startups may stand to benefit. After that, we cover the potential downsides related to VC investment in AI.