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How do I get funding for an AI business?

11 strategies to secure funding for your AI business cover image

The uneven economic recovery from the pandemic plus the increased instability brought about by armed conflict across the globe have made it a little trickier but certainly not impossible for startups to source funding. 

The good news is that if you are working in the AI space, there are more opportunities now than ever before to secure funding for your business.  Let’s learn how to position yourself to access funding and accelerate the progress of your AI startup.

Know thyself

A long row of servers in a data center.

2,400 years ago Socrates said, “Know thyself.” Before you even think about searching for funding, you must get very clear about who you are and what you are doing. Perhaps, even more importantly, you should understand who you are not and what you do not do. 

Are you even AI?

First, let’s take a deep breath and a look in the mirror. AI has been hot in the startup world for the past five years or so, and there is no chance of this industry slowing down yet. However, not all ‘AI startups’ are an AI startup. In other words: many businesses have been labeling themselves as an AI startup when there is no truth to it. 

Not only should you not be misleading people with what your company does, you should also consider AI policies, legislation, regulations, and more in the EU, the US, and worldwide and how they affect your AI business.

If you are a technology company or an automation company using an off-the-shelf AI product from Microsoft or Google, this is not the same thing as developing your own AI product. Each of these routes is going to attract a different investor audience. You want to make sure you are talking to the right people from the very beginning. 

Be clear on what it is you are developing so that you do not waste your time nor the time of potential investors from the start.

What is your mission space?

Besides fully understanding where you lie in the AI technological ecosystem, you should be very clear on your mission space and your potential clients. 

There is an unbelievable amount of public funds being invested in AI technologies (more on that later). You need to be able to determine whether there is any chance of your product being used by a government versus strictly by the private sector.

What problems do you solve now and how scalable is your product?

Are you able to solve a problem that no one else has solved before? Do you solve a problem with a known solution in less time or with less resources as a result of using your product? It is necessary to show how you provide value in the form of saved time, money, resources, or all of the above. 

Also, you need to determine the scalability of your product as early as possible and be able to speak on it. It is important to understand what are the obstacles you would need to overcome in order to enter a new geographic market or to enter a related market. 

What distinguishes you from the rest?

As we can all recall, Uber was not the first to develop a ride sharing platform. So, what is it that makes you different from everyone else with more or less the same idea? Be specific.

Potential funding sources for AI businesses

A person is holding a bunch of $100 bills in front of their face.

Old fashioned bootstrapping

Especially if you are very early along your startup journey, cobbling together your own resources may be your first line of funding. This includes personal savings and loans and gifts from friends and family.

Securing a business loan from a traditional brick and mortar bank may be tricky because these institutions tend to fund pre-existing business ideas with a long established track record. As AI is an emerging technology, someone branding themselves as an AI business may find themselves shunned by the banks. 

This is why understanding what you are and what you are not is critical. If you are working on automation using someone else’s off-the-shelf AI product, which is more easily understood by a banker and is an area that is proven to generate revenue, being direct and transparent will make it easier for you to attract conventional sources of capital. 

Incubators and accelerators

Though often confused, incubators vs accelerators are not the same thing, but both can help you with your journey through the funding pipeline. If you are very early in your startup journey and are more or less at the ideation phase and lacking a business plan, an incubator is where you need to be. You will be educated and counseled by experienced practitioners. 

Although at the incubator stage many startups are simply not ready for funding, participation in an incubator can exponentially increase the size of your network, possibly leading to an opportunity for funding down the road. 

An accelerator program is meant for businesses which already have a minimum viable product and a business plan. These programs help link founders to capital, particularly from angel investors and venture capitalists. 

Government and other sources of public funding

Depending upon your citizenship and geographical location, there are vast amounts of government funding available as grants to expedite the expansion and adoption of AI technology into the public sector. 

For instance, in the United States, is the clearinghouse for grants across all areas of the federal government. In the EU, the Horizon program and funding made accessible directly to startups as a result of an AI innovation package that supports Artificial Intelligence startups and SMEs are available.

Additionally, international bodies such as NATO and Unicef can also be a source of funding if your AI startup is geared to specific niches that these organizations serve.

Venture capital

Venture capital fills a void in funding for nascent products and industries that are not fully established in the marketplace. AI entrepreneurs seek out venture capitalists for this reason, as in most cases it may be very difficult for them to seek out a traditional business loan from a bank. Venture capital is meant to be used in the short-term to get a company off the ground and venture capital funding is distributed in multiple rounds or stages as a business develops. 

Accelerators can provide startup founders with introductions to venture capitalists, but it is not necessary to join an accelerator program in order to access one. Sometimes, the power of networking is enough to capture the attention of a venture capitalist. 

Bear in mind that your charisma and passion as a founder is not enough. You need to be able to communicate where exactly your product lies in the AI world, what value it provides, and how scalable your idea is just as any other entrepreneur would in a different industry. 

There are several stages of funding a startup. These include –

  • Pre-seed

  • Seed

  • Series A

  • Series B

  • Series C

  • Mezzanine

  • IPO 

Bootstrapping dominates the pre-seed and seed stages. Grants can also feature either during the early stages or in later stages of a startup's growth, depending upon how developed the product is, among other factors. Serious venture capitalists will step in at the Series A level, providing around $2 to $5 million, if you’re interested in knowing how much a startup needs in funding. 

Some AI companies which have recently announced Series A funding are –

  • Zephyr AI, whose mission is to optimize patient outcomes in Oncology and Cardiometabolic Disease

  • Together AI, cloud platform for building and running generative AI

  • Ideogram, a free-to-use AI tool that generates realistic images, posters, logos and more

  • Hippocratic AI, which builds safety focused Health General Intelligence 

  • Robovision AI, a platform that helps companies automate & enhance business operations through smart computer vision applications that scale.

The ability to communicate clearly your product’s utility and limitations is critical to having others understand its value, trust your worth, and feel confident about providing you with capital. 

Even if at this time you do not have an AI startup yet, but would like to create one, focus on a problem you know needs solving. Trends change–and very rapidly at that. The types of problems that companies which have received funding today may not have the same urgency or relevance in the next few years. 

Bhuva is the perfect fractional COO to help you reach funding for your AI business

If you are unsure if you are positioning yourself correctly or if you would like assistance on how well you communicate your value proposition, Bhuva is here to help. With Bhuva’s proven track record in the technology sphere, her advice can help you achieve your funding goals. Schedule a consultation today to learn more about securing funding for your AI business. 


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