Generative artificial intelligence (Gen AI) is making waves in the investment world. As of March 2025, this technology has attracted a staggering $56 billion in global venture capital funding, showing a strong growth trend from the previous year. Investors are eager to tap into the potential of Gen AI, but the excitement comes with its share of risks and uncertainties.
Walker Newell, a senior vice president and attorney at Woodruff Sawyer, shared insights on the current investment climate in Gen AI. He highlighted that major tech companies are heavily investing in this area, with Softbank planning to invest $40 billion in OpenAI, valuing the company at $260 billion before any profits. This investment surge follows the public release of ChatGPT just two years ago.
However, the market is not without its challenges. In January 2025, a Chinese startup called DeepSeek emerged, claiming to have developed a competitor to ChatGPT at a much lower cost. This news caused stock prices for leading tech companies, including Nvidia, to drop. While Nvidia has since recovered, the situation highlights the volatility in the AI market, and many are unsure how it will unfold.
Newell pointed out that smaller AI companies are particularly vulnerable to market shifts. He referenced Warren Buffett’s analogy that a rising tide lifts all boats, but when the tide goes out, it reveals who is unprepared. He emphasized that as larger companies like OpenAI thrive, many startups may struggle to survive.
For private investment managers, avoiding Gen AI investments is not a feasible option. Newell explained that successful investing often involves taking risks and accepting that some investments will fail. He likened it to kissing frogs in search of a prince. If investors don’t experience some losses, they may not be engaging with the market effectively.
Despite the potential for losses, Newell stressed the importance of having solid insurance coverage. He explained that a well-structured insurance program can provide peace of mind, even if some portfolio companies face financial troubles. Indemnification is the first line of defense, but if a company cannot provide it, directors and officers (D&O) insurance can help.
He also discussed the significance of outside directorship liability (ODL) coverage, which offers an extra layer of protection for directors when their companies are unable to indemnify them. This type of coverage is particularly relevant during bankruptcy or shareholder litigation.
Newell emphasized that regardless of how the Gen AI market evolves, there will be both winners and losers. Well-designed insurance coverage can help mitigate the legal risks associated with serving on the boards of companies that may fail. He concluded by highlighting the need for effective claims advocacy to ensure insurance policies perform when needed.
As the Gen AI landscape continues to develop, investors must remain vigilant and prepared for both opportunities and challenges ahead.