The Impact of Artificial Intelligence on the Investment Decision Process in Venture Capital Firms

Investments are influenced by the cognitive biases and heuristics of investors in the face of a hyper-competitive market caused by capital overabundance pushing deal sizes, startup valuations, and deal activity. This exploratory study outlines the challenges, opportunities, current methods, and future potential of AI adoption in line with the VC investment funnel. A qualitative analysis was conducted based on 17 expert interviews with early-stage VC investors and academic researchers. The findings reveal that most firms do not yet leverage AI, even though they already adopt data-driven decision support, due to resource scarcity in terms of people, time, and budget. Those VC firms that already apply AI predominantly aim at making their sourcing and screening processes more efficient and increasing their portfolio diversity. The interviews also reveal that the number of VCs adopting AI will significantly increase in the next few years-independently of firm size and resource availability. The catalyst for this will be emerging third-party software providers offering affordable AI tools developed primarily to enhance the VC investment decision process.