Artificial intelligence can empower companies to disrupt traditional industries. And the opportunities are there for venture capital funds as long as they find the right applications.
In an interview on the sidelines of the HKVCA Asia Private Equity Forum in Hong Kong, Yu Cheng, partner of Morningside Venture Capital, outlined what opportunities he sees in the AI industry, especially given current market volatility.
“Be cautiously optimistic and embrace AI” is his outlook for private equity investment in the next year. Cheng believes that it is time to find the valuable applications for AI technology, and to serve consumer needs.
This is logic that underpins Morningside’s investment as an early stage investor.
Education and infrastructure for Internet-of-Things (IoT) are the two areas to which AI could be applied. “Take online education for example,” Cheng said. “Its early business model used to provide online one-on-one teaching for the student. But that is a business model with a high cost.”
Cheng said he is now looking at companies trying to develop an AI teaching system for online courses so that one AI teacher can teach a lot of students and reduce the cost to the company. “We can use AI technology to pursue the perfect model of supply and demand,” Cheng added.
For IoT infrastructure, AI can help to enhance current computing and data storage. “We may invest in database startups,” Cheng said. As we come into the 5G era, we will face a huge amount of data. There will be more than 30 billion IoT devices generating data each day.
Morningside Venture Capital has, for example, invested in several AI-related companies that help autonomous driving, including Pony.ai, Horizon Robotics and XPeng. “One autonomous driving vehicle will generate over 4 terabytes of data every day, but we can process all of this on the cloud,” Cheng said.
It requires chips to carry out data-processing on the device, and data storage will be different as well. These changes will be a great opportunity for AI companies.
Cheng explained that AI is like a rocket that helps to transform companies and disrupt old industries. “We suggest that all entrepreneurs find the application scenario for AI technology and then start to build the technical barriers.”
He also mentioned that in the current environment, startups will face challenges from large companies such as Alibaba and Tencent. But it is crucial that they understand of what kind of businesses internet giants are incapable, yet small players can do. Bringing the most value to users is the key to survive.
Morningside Venture Capital has grown solidly over the past, rather tumultuous, year. It closed its latest round of fundraising in the last quarter with over $1 billion. Five of its investment projects went public last year, and the firm invested about 30 startups.
As an early stage investor, Cheng feels that the volatility in 2018 didn’t affect Morningside's pace of investment. It always chooses the top team with the most business value, he said.
The first wave of internet investment might have almost dried up, but he believes that we are on the cusp of the next wave. Cheng said that investors may still wait and see for a valuation correction in the first half of 2019 but they can be cautiously optimistic when investing in AI-related business.