Q&A with Neville Teagarden of AI Capital

COVID-19 has obviously impacted the global economy immensely. In the aftermath of the disruption and changes to consumer and business behavior, opportunities have arisen, however. We only invest in enterprise software so we believe we are insulated somewhat from changes in consumer demand. We have also only invested in companies that have an existing customer base that has the software embedded in their business processes which makes it difficult to remove or change out. We have had the good fortune that our current portfolio companies are in industries that have seen much less disruption and more new opportunities emerge. We take this as guidance for prioritization in the future and continue to see very healthy deal flow of AI software companies.

Please Note: These questions and answers are for information purposes only and do not constitute an offer to sell or a solicitation of an offer to buy any interests in AI Capital’s funds. Any such offer will be made only pursuant to a fund’s private placement memorandum. This overview may include or be based in part on projections, valuations, estimates and other financial data supplied by third parties, which has not been verified by AI Capital LLC. This information should not be relied upon for the purpose of investing in a fund or for any other purpose. Any information regarding projected or estimated investment returns are estimates only and should not be considered indicative of the actual results that may be realized or predictive of the performance of the Fund or any underlying fund in which the Fund invests. Past investment results of any underlying managers should not be viewed as indicative of future performance of the Fund.

We are currently invested in AI software companies that sell to additive manufacturing, streaming media, online retail and healthcare industries. We continue to be optimistic about these and highlighted those and others in a global virtual conference we held at the beginning of April with over 500 attendees from 21 countries. For example, the global supply chain disruption has exposed the risks of long and complex supply chains. The additive manufacturing industry is promising because it offers manufacturers a solution with more flexible and fast supply chains that can adapt rapidly. A large number of consumers are staying at home and this has led to significant growth in streaming media and online retail. Healthcare goes without saying. We are also looking at telecommunications as an adjunct to the growth in streaming media, life sciences as development, sourcing and manufacturing of pharmaceuticals comes into focus and a few others.

We are optimistic that specific industries will see growth and, overall, AI is a megatrend that has tremendous momentum. This is borne out by very recent studies by reputable technology industry researchers reported in the Wall Street Journal. International Data Corporation reaffirmed growth in AI by stating that AI will remain emphasized in corporate IT budgets in spite of IDC's IT Spending Index dropping from 1,005 to 987 denoting somewhat shrinking IT budgets. Crawford Del Prete, CEO of IDC, added, “artificial intelligence and other advanced software tools allow companies to analyze data, automate processes and eke out greater efficiencies: ‘Once you can measure it, you can more effectively manage it and potentially monetize new data sets.

AI Capital expects to invest in approximately 20 early growth stage, enterprise, applied AI companies from Fund II. The initial investments are expected to be into Series A rounds totaling $3M to $5M. We plan to lead these rounds with $2M to $3M and potentially follow on to Series B rounds of $10M to $20M with $5M to $8M investments.

Yes, we anticipate leading Series A and Series B rounds with about 50% to 70% of the round filled by AI Capital’s Fund II. We expect to be able to offer a large portion of the remainder to LPs in Fund II. We have also explored some special purpose vehicles in promising AI companies that don’t fit our investment thesis for our fund and will offer these to LPs in our funds.