Investment FOMO

Investing is a complex and ever-changing field, and it's no secret that sometimes, "what is hot is hot" without any rational explanation behind it. Even with the rigorous education provided at graduate schools around the world, individuals can still be driven by emotions and make investment decisions based on fear of missing out rather than sound financial principles. This can have a huge impact on risk appetite and lead to market bubbles, as we have seen in the past.

It's important to remember that while finance principles can be applied in a semi-strong form, there will always be external factors at play. However, by educating ourselves on financial principles and maintaining a rational mindset, we can make better investment decisions and mitigate the risks of FOMO (fear of missing out)-driven behavior. As with any field, investing requires a willingness to learn, adapt, and stay curious. By doing so, we can stay informed and make sound choices when it comes to our financial futures.

Early movers rule

Global investors are looking at trends, hoping that if they invest in early stages at lower prices, other investors will complete the start-up's journey. Within the wider investor community, AI is a hot topic. There is a well-founded belief that angels and other early investors will subscribe to new issues, followed by venture capital funds, large family offices, and retail investors.

Given the high publicity that AI receives, it is no surprise that early-stage investors like angels and venture capitalists monitor trends to determine where to invest their money for maximum returns.

The impacts of AI are already apparent, and many investors seek new opportunities in this space. While AI will impact our lives and economy for years to come, early movers will achieve dominant positions and become preferred suppliers.

Projects RH’s Insight

At Projects RH we are seeing globally strong interest in resources (green metals and gold), urban property, renewable energy, food… but number one is AI.

This interest is both from investors and candidates with new projects. AI, like fintech, stands out because it is an investment in people, the founder, and his/her small team.  At Projects RH we see potential investors ask three questions:

• What is the problem?
• Why do you have the answer?
• What is in it for me?

If the investee passes this test the next question is “show me the team which will deliver”. Having passed the first test, then they look to the balance of the team and the experience of the team. We are increasingly seeing the team leader as an experienced professional 50+ who understands the business that the technology is being applied to.

For example, if the technology is being asked to answer a question based on an individual set of facts, that they could answer the question themselves.

In all investment a key driver is the investors’ appetite for risk. When you’re swimming with the crowd it is easier for professional and part-time investors to accept higher levels of risk. Clearly, for AI this means a willingness to invest earlier in the process, say before there is a MVP (minimum viable product).

What is hot about AI has happened before

We have seen a very similar phenomenon only a few years ago with the fintech market and in many senses its success and then slowdown is seen as a template for AI.

A decade ago, many people ran around in black T-shirts, "selling" the next great chapter in the fintech story. Fintech continues, but its investment process has become more judicious because we have a better understanding of market acceptance through precedent. In the case of AI, we are clearly in the early stages of evolution as a commercial product, and parties are convinced of the merit of early-stage investment.

At Projects RH, we are seeing angel and venture capital funds being influenced by their belief in a sector, as well as a good opportunity.

In some senses the second precursor of AI was SAS (software as a service). At Projects RH we are already seeing AI, like SAS, as a fascinator of other technologies and foresee it as part of new technologies in the engineering, energy, resources, and retail spaces. As such, it will be a technology which is critical to others like mathematics is to finance, engineering or property development.

In no sense are we seeing that there is no investment in MedTech, fintech or regtech, but rather if it can be spiced up with AI it will find its journey in retail land much easier.

There is a strong message from what happened with block chain and fintech and even lithium, after the early enthusiasm to be an early mover this will wane. There is logic to being ahead of the wave. 

How can individuals participate?

At a time when many market regulators are concerned about increasing their protection of retail investors, the crowd funding market is having its own sense of rejuvenation. For most members of the community who are looking for a modest investment, crowd funding market allows investors to gain opportunity in sectors which they see as meeting their social goals or preferred investment highlights.

For new entrepreneurs, the North American market continues to be less regulated and deep. Because of its size opportunities continue to be available to fund investment opportunities for up to USD 75m pa.  The term “Reg A” issues are crowd funding issues made via authorized platforms under Regulation A whereby the US SEC grants an exception from registration of a public offering. However, this source of investment capital has its own rules. Clients of Projects RH are currently working with Intellectual Capital Corp to access this market in North America..

AI is hot!

2024 has already shown that it will be a great year for AI technologies as they spread into many sectors of the global economy. It is more than the old maximum that start-ups should always be fundraising but rather they are in the market seeking significant investments from new investors.

Already this year, three of our AI based clients have commenced their major fund-raising process. At the same time angel, venture capital and funds are looking for opportunities.

Given that the key driver of investment is the assessment of risk and your attitude to risk, for AI based companies there is now a clear early mover advantage.

The global signs are there, that for AI the investment window is open, and no one can say when it will close.

By Paul Raftery, CEO of Projects RH and based in Sydney.

We are happy to receive questions of comments at paul.raftery@projectsrh.com or +61 418 486 015.

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Source: Lam, J.; “Venture capital companies place their bets on the next big hits for 2024”, The Weekend Australian, 20-21 January, 2024.