What Private Equity And Venture Capital Firms Should Consider When Investing in AI Companies

Artificial intelligence (AI) is transforming various industries and sectors, from healthcare and finance to education and entertainment. According to PwC’s Global Artificial Intelligence Study, the global AI market is expected to reach $15.7 trillion by 2030. As a result, many investors are eager to tap into the potential of AI and support innovative start-ups and scale-ups that are developing and deploying AI solutions.

 

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However, investing in AI companies is not without challenges and risks, especially from a legal regulatory perspective. AI is a complex and dynamic field that raises various ethical, social and legal issues, such as data protection, privacy, security, bias, accountability, transparency and human rights. These issues are attracting increasing attention and scrutiny from regulators, policymakers, civil society and the public, who are demanding more responsible and trustworthy AI.

Therefore, investors need to be aware of the existing and emerging AI regulations that might affect their portfolio companies, as well as the potential liabilities and penalties that might arise from non-compliance or misconduct. Moreover, investors need to conduct a thorough and comprehensive legal regulatory risk management and due diligence process before and after making their investments, to ensure that they are not exposed to unforeseen or unacceptable risks.

What are the legal regulatory risks when investing in AI companies?

The legal regulatory risks when investing in AI companies can vary depending on the type, scope and location of the AI activities, as well as the industry and sector involved.However, some of the common and significant risks include:

Data protection and privacy

AI often relies on large and diverse datasets to train, test and improve its algorithms and models. However, these datasets might contain personal or sensitive information that is subject to data protection and privacy laws, such as the General Data Protection Regulation (GDPR) in the European Union or the Swiss Data Protection Act.[…]

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