In 2012, Sean Lane and Jeremy Yoder founded Olive AI, a healthcare startup that aimed to improve operational efficiency through the use of AI. The company received significant funding from high-profile investors and reached a peak valuation of $4 billion in 2021. However, despite initial success with over 900 hospitals adopting their technology, Olive AI ultimately shut down in late 2023 due to rapid and unsustainable growth, as well as strategic miscalculations.
According to author Sergei Polevikov, the company’s lack of focus and excessive spending fueled by easy VC money were major contributing factors to its downfall. This raises the question of how even with backing from reputable investors, a startup can fail due to miscalculations. Surprisingly, data shows that several AI startups backed by prominent investors have shut down in the last five years.
Venture capitalist and Khosla Ventures founder Vinod Khosla has been vocal about the negative impact of VCs on startups. In a 2019 interview with OpenAI chief Sam Altman, he stated that 90% of investors add no value, and 70% actually have a negative impact on a company. Khosla believes that the key qualification for a VC to offer advice is having personally experienced the challenges of building a large company.
However, some argue that VC money is crucial for the growth and success of AI startups. Pranavan S, founder and CEO of Control One, a Bengaluru-based startup, believes that VC funding not only provides necessary funds but also helps build confidence with customers and strengthens networking and partnerships. Control One, founded in 2023, has raised $350,000 from industry leaders, including iRobot co-founder Helen Greiner and CRED founder Kunal Shah.
Despite the potential benefits of VC funding, it is important for startups to carefully consider the source and terms of their investments. The surge in investments in AI startups has led to a competitive landscape, and startups must be cautious of unsustainable growth and strategic miscalculations that can ultimately lead to failure.
