AI-related startups raised almost $50 billion in 2023, about one-third of the capital invested across all U.S. startups for the year. But that’s not the most interesting AI stat from last year.

Investment in AI kept going strong despite a 37% overall decline in investment across all VC stages in North America. The first lesson is that real innovation attracts investment, even in downturns. But there’s much more to be gleaned from AI’s historic rise in 2023 — observations about the nature and potential of AI that set it apart from any other technology investment opportunity in recent history.

Here are three insights about AI, VC, and innovation that investors, business owners/operators, and tech founders should keep in mind in the years to come:

1. AI delivered a compelling, multi-dimensional proof of concept.

AI has been a fascinating idea and the subject of movies and novels since the 1950s, but investment in technology didn’t explode until the last few years. A fair question to ask would be, “What changed?”

To gain public acceptance and mainstream financial investment, AI had to prove itself in at least two respects: utility and usability.

With respect to utility, purveyors of AI needed to demonstrate that the technology could perform complex operations and complete advanced tasks beyond those of a simple chatbot. Technologists made big promises and delivered in grand fashion.

Major AI companies such as OpenAI , Google DeepMind , and Anthropic released highly capable large language models (LLMs) that excel at a variety of creative and administrative tasks. Microsoft released its Copilot, which accelerates and simplifies a wide range of tasks, including communication, data analysis, security compliance, and collaboration. In addition to these broader tools, dozens of AI-native vertical applications were released and have made tremendous positive impacts on virtually every sector of the economy. In 2023, it became crystal clear to everyone that AI had matured to the point where, in many tasks, it outperformed humans.

The high level of usability for most of these applications might have been the biggest surprise. Regardless of how powerful a new tool is, it’s completely useless if no one is able to — or wants to — use it. For the vast majority of AI platforms I’ve used, the user experience has been very good. Even the most avant-garde generative AI platforms to emerge featured simple, user-friendly interfaces that flattened the learning curve for early adopters. Usability was the critical second hurdle for AI to clear, and the technology didn’t even break a sweat overcoming it. Millions of workers from all facets of the economy adopted AI wholesale, at work, and at home, and they are now primed to see what else it can do.

Given the incredible potential of emerging AI technologies and their historically high level of adoption (e.g., ChatGPT reached 100 million users in just two months), it’s clear that AI is mainstream and here to stay with nowhere to go but up.

2. Augmenting human performance is the ultimate use case.

Conversations about AI often focus on concerns related to displacing or altogether replacing human labor and the dire economic consequences that would follow. However, the evidence I see, both statistical and anecdotal, is making it increasingly clear that we should move past these fears.

At the macro level, AI is forecasted by Bank of America Global Research to contribute $900 billion in global service and sales by 2026 (up from $318 billion in 2020), and add $15 trillion to the global economy by 2030. All of that capital will create new needs, jobs, and industries that will be starved for labor. While experts agree that some jobs will be lost, it would be irresponsible to preclude the creation of so many more unprecedented opportunities at every level of the economy.

While the expected Wall Street impacts of AI are impressive, I think the Main Street benefits are the most exciting. The task at which AI excels the most—its most important and high-potential use case—is human augmentation. It’s about helping large and small businesses improve efficiencies, automate workflows, expand margins, and grow—an area that Ohanafy continues to excel at. It helps high performers excel, and those with less experience contribute and add immediate value to their work and skillsets.

Think about the small businesses you support. What would 20% cost savings mean to their bottom line? In many instances, the efficiencies that AI makes possible will fund expansions, new investments, and additional branches or locations.

Workers also stand to benefit significantly from adopting AI. People who proactively seek out the AI tools that will be reshaping their industries will be met with new opportunities, while workers who change careers or reenter the workforce will be able to reskill and upskill to lay the groundwork for new careers.

AI will evolve alongside human workers, and each will adapt to further complement the other. The companies that figure out how to accelerate this process and maximize positive outcomes in each vertical will flourish and dominate.

3. Advancements in AI create demand for related infrastructure — and more.

Most of the commentary around AI has a software bias, and it’s understandable. AI is software, and it’s most frequently fielded and encountered through software or SaaS applications. That said, large-scale adoption of AI is also triggering a staggering level of investment in the hardware and infrastructure that’s needed to host and run AI. NVIDIA is a great example.

In February 2024, Nvidia reported an astonishing year-on-year quarterly revenue growth of 265%, and a large portion of this growth came from the company’s data centers. These facilities provide platforms for hosting machine learning (ML), high-performance computing (HPC) workloads, and enterprise AI applications, and they are in high demand as organizations around the world scramble for enough compute capability to run their new AI and ML applications.

The implications outside of Silicon Valley run the gamut from national defense to the auto industry. AI isn’t going to be an industry unto itself for long, as it’s being absorbed into the core of every vertical, sector, and business. For example, Palantir Technologies , which was one of my earliest VC investments, is using AI to help the U.S. federal government modernize the classification system used for classified information.

In an entirely different industry, Tesla is using AI to rapidly advance its full-service driving (FSD) technology. It’s noteworthy that Tesla’s newest training cluster will be powered by thousands of NVIDIA Graphic Processing Units (GPUs), reportedly valued at “hundreds of millions of dollars.”

Navigating AI Investment and Innovation

AI and related technologies are the primary focus of Cape Fear Ventures because the upside they offer is simply unmatched in terms of profitability and improving the quality of life for people around the world. I’m excited about what the future holds, and I’m eager to connect with like-minded founders and investors who share my optimism.

Feel free to contact me through LinkedIn if you’re looking to deploy capital in leading-edge AI projects or if you’re a founder with the next fantastic idea. I look forward to hearing from you.