Artificial Intelligence is undoubtedly transformative, edging closer to the futures envisioned by Neal Stephenson in Snow Crash and Philip K. Dick in Minority Report. However, neither author foresaw the rise of remote work, which has brought reduced human engagement and new challenges in management and employee well-being.
But I digress.
Here are the key trends we’ve observed this year during Tech Due Diligence:
University Spin-Outs Are More Attractive Than Ever
In recent years, university spin-outs—tech startups originating from academic research—often faced scrutiny during Tech Due Diligence. Investors questioned whether these teams could transition from research-focused environments to successful commercial operations, even when startups had shown commercial potential.
This often resulted in the replacement of technical CEOs with commercially-focused leaders.
In 2024, however, the narrative has changed. The years of dedicated research and expertise are paying off, and university spin-outs have become highly sought-after. Their advanced R&D capabilities and ability to deliver unique AI solutions make them prime candidates for investment.
A Divide in Fundraising: Simple SaaS vs. ‘Real’ AI Firms
A clear divide has emerged in Tech Due Diligence between simple SaaS firms and true AI companies.
Building real AI requires significantly more capital and time than SaaS startups, which often begin with minimal investment and a working prototype. By contrast, we’ve seen early-stage AI firms in the UK raising upwards of £10 million just to get going, reflecting the complexity and investor confidence in their potential.
This underscores the importance of robust financial planning for AI startups, as extended R&D phases can strain resources before revenue generation begins.
AI Veterans Outshine the Crowd
A notable observation during Tech Due Diligence this year has been the contrast between high-profile founders and seasoned AI veterans.
For example, we assessed two companies on the same day::
- One led by a young, high-profile founder with a strong personal brand in AI. While their confidence was evident, their product lacked defensibility and unique value.
- The other was developed by experienced professionals with decades of expertise in AI, development, and chip-making. Their product was exceptional, meticulously crafted over time, and demonstrated a clear competitive edge.
This isn’t about favouring experience over youth—it’s about recognising the importance of substance over style when evaluating startups during Tech Due Diligence.
Human-in-the-Loop: Measuring Automation
The term “human-in-the-loop” often comes up during Tech Due Diligence to describe the balance between AI automation and human effort.
Some firms achieve impressive automation ratios. For instance, one company automated 95% of its processes, with the remaining 5% handled by a team of 1,000 people. Without automation, that team would need to be significantly larger and more expensive.
However, many startups struggle to define this ratio or present a clear plan to reduce human input over time. During Tech Due Diligence, these gaps raise red flags. Companies need to establish key performance indicators (KPIs) for automation early and demonstrate a roadmap for improving efficiency to attract investors.
Value as a Service
Ultimately, Tech Due Diligence is about identifying value. Whether a process is driven by humans or AI, the focus remains on delivering value to a large market.
Some companies choose to retain higher levels of human interaction in areas like onboarding and customer service, recognising this as their key differentiator. While more automation is often possible, these firms understand that a personal touch can still offer a competitive edge, particularly in today’s remote-working environment.
Balancing automation with human input is critical, and this decision often reflects the company’s strategic priorities.
Services as a Service
A new variation of the ‘SaaS’ acronym is emerging during Tech Due Diligence: professional services delivered as AI-driven solutions.
Take Technology Due Diligence itself. Why rely on an expensive CTO, CIO, and supporting team when AI agents can perform much of the groundwork? While the potential is exciting, the reality is that customers still value expert insights informed by experience and supported by robust data analysis.
Developing AI to assess areas like the following would require significant investment but could unlock more affordable pricing and open new markets:
- Team capability
- Data quality
- Product and technology assessment
- Security and governance
- Communication and transparency
While automation can streamline many processes, Tech Due Diligence ultimately depends on striking the right balance between technology and human expertise to deliver actionable insights.
AI continues to reshape the way we evaluate and support businesses. For Investment professionals, the challenge lies in recognising the transformative potential of AI while remaining focused on value, scalability, and the fundamentals that drive success.
