How the new Presidential Executive Order (EO) on AI Shapes the Landscape for Corporations including Corporate Venture Capital

How the new Presidential Executive Order (EO) on AI Shapes the Landscape for Corporations including Corporate Venture Capital

Artificial Intelligence (AI) has revolutionized industries, spawning countless startups and innovations. As AI's potential and implications have grown, so too has the attention of regulators. While attending the White House briefing on AI this week, it is evident that the recent Executive Order on AI is a testament to this heightened scrutiny. This landmark decision, which emphasizes safety, privacy, and innovation, inevitably sends ripples through the corporate venture capital (CVC) ecosystem. Let's explore how three key impacts of this Executive Order will shape CVC's approach to AI investments.

1. Navigating the Maze of Regulatory Scrutiny & Compliance Costs

CVCs, inherently closer to established corporate entities, often operate under a different risk appetite than independent venture capital firms. This distinction becomes more pronounced with the new compliance mandates ushered in by the EO.

Implications for CVCs:

Due Diligence Depth: Before making an investment decision, CVCs will delve deeper into the AI startups' compliance mechanisms. The onus will be on startups to demonstrate not just the brilliance of their AI models, but also their commitment to meeting regulatory requirements. For CVCs, this translates to longer evaluation cycles and more comprehensive due diligence checklists.

Budgetary Allocations: Startups in the AI domain, especially those developing foundational AI models, will need to earmark significant budgets for compliance. As strategic investors, CVCs will have to ensure that their portfolio companies are adequately funded to meet these regulatory requirements, which might lead to increased initial capital outlays or follow-on investments.

Strategic Synergies: For CVCs tied to corporations that already operate in heavily regulated sectors (e.g., healthcare, finance), there might be synergistic opportunities. These corporations can provide their portfolio startups with insights, tools, and best practices to navigate the regulatory landscape more effectively.

2. The Golden Era of Privacy-Preserving AI

The Executive Order's emphasis on Americans' privacy offers a dual narrative for CVCs. On one hand, it's a call to action to safeguard user data. On the other, it's a golden opportunity to lead the charge in privacy-preserving AI innovations.

Implications for CVCs:

Investment Focus: The clarion call for privacy-preserving techniques, such as differential privacy and federated learning, signifies a burgeoning market. CVCs, especially those affiliated with data-centric corporations, should be on the lookout for startups championing these technologies.

Value Proposition: In the post-GDPR era, where data privacy regulations are becoming the norm, the ability to train AI models without compromising data privacy is a strong value proposition. CVCs can strategically position their portfolios by backing solutions that offer this dual advantage of innovation and compliance.

Collaborative Innovations: CVCs, given their corporate affiliations, are uniquely positioned to facilitate real-world pilot projects. By connecting startups with corporate units, they can promote the development and testing of privacy-preserving techniques in real business scenarios.

3. Embracing the Tidal Wave of Innovation & Competition

The Executive Order is a clear endorsement of America's commitment to remain at the forefront of AI innovation. As we see from the chart below, the percentage of technology subclasses, including some form of AI, increased from 10% in 1979 to over 50% in 2020, according to the U.S. Patent Office . 

via USPTO

For CVCs, this provides both a roadmap and a challenge.

Implications for CVCs:

Broadening Horizons: With initiatives to give researchers access to key resources and to promote AI breakthrough commercialization, there's an expanded horizon for CVCs. Investing in or collaborating with startups focusing on healthcare, climate change, and other prioritized sectors can be lucrative.

Championing the Underdog: The Executive Order's emphasis on supporting small developers and entrepreneurs is a clarion call for CVCs to back the underdog. By fostering a culture of innovation and ensuring a level playing field, CVCs can unearth gems that can lead the next wave of AI innovations.

While the Executive Order introduces layers of complexity to the AI ecosystem, it also carves pathways for strategic and informed investments. For Corporate Venture Capitalists, the future might involve meticulous due diligence, a renewed emphasis on privacy, and a commitment to foster innovation. In this evolving landscape, those who adapt, collaborate, and innovate will undoubtedly lead the charge.

Managing Partner, Nova Global Ventures

Christine@NovaGV.com

James Mawson

Dad and CEO/Founder of GCV (Global Corporate Venturing)&GUV

1y

Great insights Christine! FYI Maija Palmer in case a useful op-ed for GCV?

Like
Reply
Savannah Berry Suttle

Family Dynamics Coach for Family Businesses + Growth Accelerator, Operational Strategist, Resilience Builder, Relationship Economist & All-Around-Straight-Shooter: Helping leaders get out of the weeds & back into leading

1y

Alyson Kreutzer this is right up your alley

To view or add a comment, sign in

More articles by Dr Christine Gulbranson ~Transformative Innovation®~

Insights from the community

Others also viewed

Explore topics