The artificial intelligence boom has resulted in an explosion of new startups and new products. All of these companies need funding, but the venture capital landscape has become more lean and focused. With the proliferation of so many new companies, how do venture capitalists decide where to put their money?

In a live panel discussion held in partnership with Mercury, Amir Efrati of The Information discussed AI investments with three experts:

Barry McCardel: Co-founder and CEO, Hex Technologies

Bhavin Shah: Co-founder and CEO, Moveworks

Naomi Pilosof Ionita: Partner, Menlo Ventures

The Purse Strings Are Loosening

Efrati opened the conversation by asking Bhavin Shah of Moveworks what he’s seeing in the investment landscape. Shah said he’s seen a shift. “I think everyone’s been given the mandate to go research—but not everyone has been given the mandate to spend. That’s where we’re seeing things open up now. We’re starting to see that confidence come back as investors make choices and pick platforms for their future.”

Is It Better to Buy or Build AI?

The argument for a plug-and-play AI solution like Moveworks is speed of implementation and ease of use. But Barry McCardel of Hex sees the value in large companies building their own AI properties. Hex acts as a co-pilot for data scientists and analysts to build, improve and debug bespoke AI efforts. “It’s pointing toward this bigger opportunity we see, which is lowering the barrier to doing this stuff.” He pointed out Microsoft as an example of a large company creating its own AI. “They famously missed the moment on mobile, the last big platform shift. With this shift, they’re out ahead. They’re doing more than any startup in terms of incorporating these features into their products. I think we’re potentially going to see a very different set of outcomes for whether these technologies benefit incumbents versus new upstarts.”

Investment Decisions: Too Much of a Good Thing?

With so many new companies, venture capitalists are having a harder time choosing the ones worthy of their investments. Naomi Ionita of Menlo Ventures explained, “Now it’s just sheer chaos in certain categories where 10 to 15 companies pop up seemingly overnight.…What’s harder than ever is for founders to scale and break out of that noise. It’s also harder for investors like me to pick.”

Shah added, “There’s an oversupply of demos and promises, and there’s an undersupply of actual working product. To the extent that a startup can deliver real, measurable impact that works today—you’ve got yourself an awesome opportunity.”

Agents of Efficiency

What’s really exciting to Ionita is the technology that lies just around the corner. “What’s interesting is how much of this technology is going to be conversational versus the rise of agents. I love this idea of just giving a goal, a task or a research question—and being able to have all of that happen in the background. Agents aren’t quite there yet, but they are superpromising.”

McCardel put the timeline for such technology in realistic terms. “How far are we from an agent that can be your full chief of staff? One where you can give it a list of things that you need to get done this week and it comes back as it’s completing them? Probably years or decades.…I think the best workflows and the best products and the best practices right now are the ones that are keeping the human in the loop throughout the process.”

How to Stand Out in a Sea of AI Startups

Now that there are more AI companies out there, the competition has become fiercer. So how can startups break away from the pack and attract investors? Ionita talked about the do’s and don’ts. “It’s about driving hard attributable [return on investment] in the form of revenue. That’s the noise you have to cut through today when the [chief financial officer] is a part of these buying decisions. If you don’t have an early story around growth, around revenue, you’re going to be in a tough spot.”

The Laws of Investment Attraction

In today’s AI gold rush, the competition is fierce and it’s harder to attract capital investments. And while venture capitalists are putting more consideration into their investments, that money is still out there. The companies that break away from the pack are the ones that are provable, have unique data sets and have a real, working product that solves today’s pain points—and anticipates tomorrow’s.