How to distinguish a fake AI startup from an actual innovation?

In the wake of the AI hype wave, a lot of seemingly technological startups turn out to be innovative only on paper. Let’s see how to distinguish genuinely innovative AI startups from those that merely aim to appear innovative.

Presence of real technologies

An innovative company offers ready-made products that solve specific problems and are actively used in the real world. For example, OpenAI’s ChatGPT is widely applied in everyday life, business, and education. Or Groq’s LPU and API cloud is already utilized by developers who want to build their own applications. A fake company, on the other hand, may generate media buzz but will fail to present any concrete technologies.

Investor support and funding

Funding rounds are a strong litmus test for startups. Major investors conduct rigorous due diligence before investing. Multiple rounds of funding, significant amounts raised, and reputable investors are all indicators of a reliable company. Conversely, difficulty in raising funds and involvement of lesser-known investors suggest a higher-risk investment.

Transparency

The concept is simple. Innovative companies openly publish all essential information that can attract potential investors and future customers: research, technical documentation, patents, joint projects with other companies in the AI sector, and more. They are eager to demonstrate how their technology works and to prove its effectiveness.

By contrast, dubious companies tend to hide information about their scientific achievements, often because their technology simply doesn’t work.

Compliance with laws and ethical standards

Innovative startups adhere to ethical standards in the AI field, implementing principles of responsibility and transparency in their products. They aim to ensure that their product benefits society and complies with regulatory frameworks, avoiding sanctions.

On the other hand, fake AI startups may violate ethical standards and, at times, even laws.

Our cases

Raison takes a meticulous approach to selecting startups for investment. We conduct thorough analyses based on the above criteria, among others. This careful approach ensures that the companies in our portfolio grow and confidently progress toward IPOs.

Anthropic

In May 2023, Raison participated in a Series C round, investing $1.5 million in Anthropic. By December 2023, after a comprehensive analysis of market conditions, we had sold 87% of the company’s shares on the secondary market, achieving an 8-month return of 189%. The remaining 13% of shares were sold in September 2024, yielding a return of around 270%. This example demonstrates our ability not only to invest at the right time but also to accurately determine when to exit an investment.

Scale AI

In September 2023, we took part in a secondary market round of Scale AI. The company successfully completed a Series F, raising an impressive $1 billion. This achievement reflects strong investor confidence in the company and its future. Raison's participation in this round highlights our strategic approach to selecting AI leaders.

Conclusion

The AI sector is one of the most promising areas for investment today. However, investors must remain cautious and thoroughly analyze companies to avoid investing in empty ventures. Applying clear selection criteria helps avoid pitfalls and identify startups with real technologies and long-term potential.

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