ValidMind, a startup focused on AI and model risk management for financial institutions, today announced that it has raised $8.1 million in seed funding. The round was led by Point72 Ventureswith participation from several other enterprise capital firms.
The latest capital comes at a time when banks face increasing pressure to expand their use of AI while ensuring these technologies comply with regulations. According to a report by the Consumer Financial Protection Bureau, Banks that use chatbots risk providing inaccurate information to their customers, which weakens consumer trust. Additionally, latest regulations similar to the EU's AI Act and the proposed US AI Bill of Rights are pushing the bounds of current Model Risk Management (MRM) processes and legacy MRM systems at banks.
Jonas Jacobi, CEO and co-founder of ValidMind, explained in a recent interview with VentureBeat: “Financial institution MRM teams are struggling to maintain up because the business faces increasing pressure to deliver more AI solutions faster and from regulators to accomplish that ensure compliance with regulations.”
How ValidMind helps with compliance
Jacobi explained that he liked the present regulations SR 11-7 within the US already cover AI models, even when AI is just not explicitly mentioned. “The banks outside the U.S. may have a leg up on all other banks because they’re already regulated,” he said.
However, the model risk management process at most banks involves extensive manual effort. “We know from conversations with our customers that this accounts for about 30% of the model risk management team’s effort to manually update these records,” Jacobi explained.
This is where ValidMind comes into play. The startup's platform automates parts of the model documentation, testing and validation process required for regulatory compliance.
According to Jacobi: “If you’ve gotten an information scientist who’s at full capability at $400,000 per yr, and so they spend 50% on writing documentation and we will automate 80% of it, that’s a savings of 16 hours per week.”
He believes this may allow financial institutions to speed up AI adoption without hindering innovation. “I don’t think regulation will hinder innovation. That’s what happens if you don’t use the best tools,” commented Jacobi.
Investor interest in AI governance solutions
The latest funding will support ValidMind's goal of building itself as a long-term partner for banks expanding their use of AI. The company also plans to expand its sales, marketing and customer success teams.
Jacobi said the successful funding round shows investors' interest in AI governance solutions. “The undeniable fact that we managed to lift a really oversubscribed funding round was very exciting for us as an organization and team,” he noted.
The startup's total funding now stands at $11.1 million following the brand new seed round. While AI model risk management remains to be a nascent field, ValidMind's solution appears tailored to the growing interface between AI innovation and regulation in financial services.
Becoming a “certification body” for AI
Jacobi envisions ValidMind eventually evolving right into a “certification authority,” providing on-demand validation services to ease the burden on the bank’s model risk management staff.
He explained ValidMind's long-term vision: “How can we help corporations create more trust in the usage of AI? This signifies that after all this also includes what we’re doing today, which is low-risk AI risk, namely compliance with regulatory requirements.” ?”
As AI becomes increasingly vital in financial services, ValidMind goals to make sure integrity throughout the AI model lifecycle.
