Session on Due Diligence for Investments in Artificial Intelligence by Mr. Kashyap Kompella, CFA

Contributed By :Sri Siva Shankar R., CFA

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This was second event of the day conducted by the Bangalore chapter of CFA Society India on 22nd February, on Due Diligence for investments in Artificial Intelligence by Mr. Kashyap Kompella who is the CEO and Chief Analyst at RPA2AI Research. He has evaluated over 200 vendors for their technology and shared his learning with us.

The session started out with Mr Kashyap giving us a brief introduction on AI/ML and what are the different types of Artificial Intelligence and Machine learning process and what the VC/M&A investors look for in these start-ups. The investments made in this sector alone have touched $27 billion in the 2019.

The primary issue with evaluating AI start-up is the metrics one should evaluate, is not clearly defined like SaaS start-ups due to the nascent nature of the industry. Kashyap also quoted that “Software is eating the world, Machine Learning is eating software”.

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First part of the due diligence an investor should explore is the competitive advantage or the moat. Investors should evaluate if AI/ML start-up has ownership of the model and the data. Next would be to have a team that understands the maths and science behind the model. This helps the firm to re-orient and modify their code when a new technology or model penetrates the market.

The second part of the due diligence is evaluating the performance and the readiness of these models. There are number of open source model available which are used as industry benchmark. The model that is being evaluated should be tested against these industry benchmark to evaluate the value they provide. They should further be tested on their readiness and scalability.

This was followed by a Q&A where the audience were keen to understand the unique risk that comes with AI start-ups. Mr. Kashyap pointed out the case with image recognition apps and the need to regulate the use of these AI models to prevent abuse. Till such proper laws are introduced, the risk is must be factored in. He also pointed the similar risk were found in e-pharmacy space and the successful start-ups found a way to worked around it and that is also the reason a sound management team is of absolute importance.

Kashyap also generously shared a number of online resources which could be tapped by any AI/ML enthusiast to develop skills and gain a greater understanding of this upcoming trend. He also spoke about how knowing code, maths and domain knowledge is a sought-after expertise in this industry for success.

 

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