Our AI Investment Philosophy

September 12, 2024

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For the past two years, we have seen the landscape of AI shift from sporadic use of deep learning and neural networks to what is undeniably the fifth industrial revolution. Big Tech’s AI arms race to create closed- and open-source models and the push to improve compute efficiency has created unprecedented potential for founders to build industry-changing companies.  

After the release of ChatGPT, $20B+ poured into Generative AI companies.​ In 2024 alone, 225 startups have already raised $12.3B, with most of the mix shifting towards earlier-stage GenAI-native companies. Within this fervor, we believe that successful AI-native companies will be the ones that have identified a specific problem and are using AI interchangeably to tackle it. In the past few years, Oak HC/FT has taken a deliberate approach to investing in AI, linked to our core investment philosophy: enduring companies drive systemic change. 

Across our 90 investments, we focus on partnering with companies and founders that are driving one or more of the following five levers of structural change:

  • Access: Does this platform democratize a solution for previously underserved populations?
  • Outcomes: Does this platform deliver measurable improvement over the status quo? Is that improvement meaningful enough? 
  • Cost: Does this platform remove unnecessary spend from the broader ecosystem?
  • Speed: Does this platform improve time to resolution?
  • Friction: Does this platform meaningfully reduce bottlenecks that create downstream cost or inefficiencies?

When applying these levers to AI in healthcare and fintech today, we see a clear ability to impact access, outcomes and friction in the medium-term, including:

  • Scaling operations [friction + speed + cost]
  • One-to-one/one-to-many engagement [access + friction + outcomes]
  • Processing data [speed + outcomes]
  • Personalization [access + friction + outcomes]
  • Risk management [friction + outcomes]
  • Training & upskilling [speed + outcomes + cost]    

Companies that manage to also unlock speed and/or cost can drive long-term structural change. 

As we think more broadly about the AI space and company building, what’s clear is that LLMs have democratized AI. The magnitude of the data available for training is now being met with the compute power to process it in a way that just wasn’t possible before. Because of the availability of the data, the model type has become somewhat irrelevant. It is no longer a core competency to have a proprietary AI model as has been the case over the last many decades. Core competencies now will come from companies that have (i) gold-standard data(i.e., amount of available data, what is the right way to do an action you want the AI to do), (ii) deep understanding of the status quo processes being addressed and (iii) the right business model (i.e., SaaS pricing isn’t the answer to everything). In heavily regulated industries like healthcare and fintech, there are additional layers of data privacy considerations, hallucination risks and need for some level of auditability. 

When we think about how we evaluate AI-native companies for investment building in these spaces, we start by thinking about addressable markets in healthcare and fintech for AI. We believe that AI can upskill workers but will not replace them entirely. We believe that end-to-end process ownership, not ChatGPT wrappers, will be transformative. We believe that not everything needs an AI solution today, because AI is still relatively expensive to deploy, maintain and monitor. We believe that you need a capable data science infrastructure and a team to test use cases to be successful. We also believe that in both healthcare and fintech, founders need to have a nuanced understanding of probabilistic and deterministic outcomes as it relates to AI modeling - and what use cases are appropriate for each. Most importantly, we believe ROI needs to be measurable. 

Then, we think about the team tackling the problem. Strong understanding of healthcare or fintech verticals - whether through prior lived experience or thoughtful talent acquisition - is a must to successfully navigate these spaces. Relationships with potential customers matter, because you need access to training data and development partners willing to build with you. Willingness to think differently about how to shift through huge reams of data to identify unique solutions or workflows. Capital efficiency is highly valued. Building enduring companies in healthcare or fintech takes longer than in pure tech, so scaling in a capital efficient manner is essential to weathering cycles.  

Good AI-native companies across healthcare and fintech will look a lot like the breakouts over the last decade. They will be made up of great people, tackling an expensive problem, leveraging proprietary and third-party solutions to deliver a high-quality product and will do so while staying focused and disciplined. The democratization of AI has opened the doors to more founders asking questions of the status quo than ever before, but the keys to building a successful company are still the same.

Put simply, we are interested in companies that are solving healthcare and fintechs’ most fundamental problems with AI. We want to partner with companies willing to use this new technology to tackle the toughest problems in entrenched industries that have historically been slow to change. We think AI can make a meaningful difference, but we are not naive to think that it will happen overnight or without a deep understanding of the regulatory environments and systemic issues in healthcare and fintech. When applied well, a nuanced understanding of regulation in healthcare and fintech can help founders build a defensible moat around their AI business.

Our goal is to support founders – building at the seed stage and beyond – who have the fortitude and ingenuity to forge new paths with AI, accelerating progress and delivering on the promise of transformation in these industries.   

We know that capital is not enough. One of Oak’s biggest differentiators is the depth of our network and our decades of expertise building and exiting companies that have driven structural change. Our portfolio represents a major commercial network for the AI companies we invest in, with the potential to unlock millions of patients and transactions. We are most excited about working with technical founders who are eager to step into regulated industries and figure out how to apply this revolutionary technology - and we want to help them navigate the spaces with our connections and experience. 

Get in Touch

If you are a founder building an AI-native startup for healthcare or fintech, we want to meet you to learn more about your project and how we might be able to support you. Reach out to us at ai@oakhcft.com.