Startup founders need to think about how to integrate artificial intelligence (AI) into their business with care and attention to potential risks in order to attract investors, a leading VC says.
But a fear of those risks and regulation shouldn’t cause a “paralysis moment” that stop innovation, says Lee Hickin, the AI technology policy lead for Microsoft Asia.
Hickin was part of a discussion with Kylie Frazer, cofounder and partner at Flying Fox Ventures, and Stela Solar, director of the CSIRO’s National AI Centre, at the recent AI Deep Dive event, presented by Startup Daily and Microsoft.
With governments around the world taking a closer look at AI regulation amid a broader debate about its ethics and use, that attention has left some wondering if now’s the time to take big bets on its use.
Lee Hickin says move now.
“It shouldn’t stop you innovating. I think that for me is the critical thing here,” he said.
“Don’t look at AI regulation as a paralysis moment – like, ‘I can’t do anything’. You can. Just take steps to put governance processes in place as you build your technology capability. A bit of due care and attention to risk management today and you can adapt to it in time.”

Kylie Frazer, Lee Hickin watch as NAIC director Stela Solar talks about AI accessibility. Image: Startup Daily.
Microsoft has been at the forefront of developing policies around the responsible use of AI and around the world, and Hickin is working with the National AI Centre (NAIC) to help formulate an AI safety standard.
He outlined three global structures emerging, from China’s state-based integrity model to a European approach of punitive risk management and citizens rights and in the US, an economic code of conduct.
Australia’s view aligns with the US, with the government releasing a responsible AI discussion paper in January.
“We want to protect the highest risk scenarios. We want to enable and encourage an economic opportunity for Australian businesses, and we want to fit in with a global AI governance framework,” Hickin said.
The AI arms race
There is broad recognition of the need for AI governance and regulation, but the specifics are still evolving and AI introduces new vectors of risk that need to be addressed through internal governance mechanisms rather than solely relying on legal compliance.
NAIC director Stela Solar said the centre’s core role is to help businesses adopt and innovate with AI in a safe and responsible way.
But surprisingly, the rush to AI has also caused something of a business arms race, she noted.
“There is a dilemma that businesses are facing right now, which is that AI has just become so amazingly accessible. It’s fantastic,” Solar said.
“You no longer need to be a data scientist or developer to access the tools from technology providers.
“But what’s interesting when we talk with business leaders is we heard of this concept of AI inflation, where one company implements a chatbot, and straightaway, the others start doing the same thing.
“And then you’re on the same level playing field, and you haven’t differentiated.
“Then the next company might implement a generative AI search on their website. And then suddenly, the others see it, and they quickly implement the same thing.”
Implementing AI strategically
Hickin adds that companies need to be smart about AI’s implementation.
“AI alone is not a solution to anything at all. One thing we learned from the ChatGPT moment was that it’s kind of fun, but doesn’t it have a purpose in of itself,” he said.
“Our entire Copilot Strategy is founded on this idea that you take AI and you apply it to solve a problem, but you put it in the context of a need or an outcome that needs to be solved.
“I think that will be the earliest mistake that most people can make is they say, how do we get AI to fix this problem versus what is the problem, and how does AI fit into that problem domain?”
Kylie Frazer at Flying Fox has taken a close look at AI’s perspective from an investor lens and sees hundreds of startups now waving the AI flag.
It’s also already transforming the VC’s existing investments.
“Out of the 55 companies in our portfolio, probably all of them except for Heaps Normal, could be categorised as an AI company now,” she said.
“That’s not how they started, but it’s front and centre of nearly all their products. So if startups aren’t thinking about how they put AI into their products, they’re already behind the game.”
Accessibility becomes possibility
Stela Solar said one of the dramatic recent changes in AI, which has been around for decades, is its accessibility, which means it’s not just a big tech solution.
“Recently, we conducted an ecosystem survey and we found 544 Australian businesses who were in the area of making AI technologies or AI-empowered technologies,” she said.
“That’s quite a hidden dynamic that is growing. About 200 of those companies just established in the last five years, about 400 in the last 10 years, so it’s rapidly accelerating. And we also learned that there are some very real strengths that Australia has in terms of capability.”
Among the biggest opportunities are agriculture and farming, as well as medtech. “Also in optometry, believe it or not, Australia is publishing most of the world’s AI for optometry research and releasing technologies,” she added.
Xalient, a Flying Fox investment, is pioneering an actual bionic eye, 50 years after The Six Million Dollar Man TV series. $6 million? Major Steve Austin basically scored a Seed round.

The AI Deep Dive panel at the Microsoft Reactor space in the Sydney Startup Hub
Addressing risk
The challenge for everyone is how to address the risks AI opens up.
Stela Solar says investors are assessing the risks as it’s implemented.
“Just keep that in mind that they’re thinking about the investments they’re making, the portfolios they have, and how companies are approaching their AI journey, and they’re wanting to mitigate the risk while maximising the opportunity,” she said.
“So make sure to really lean into the trusted practices, methods – and Microsoft has plenty of best practices in this area – and lead with them because investors want to reduce that risk while helping you succeed and boost the opportunity.”
Flying Fox’s Kylie Frazer believes addressing the issue will be part of ESG reporting.
“As a VC, I have investors, and they want to know that I have some kind of ESG policy,” she said.
Stela Solar agrees that “ESG holds a lot of promise for integrating AI governance into ESG and activating the entire organisation towards it.”
And she points to something unique about Australia’s viewpoint when it comes to AI principles globally.
“There was actually a unique element in countries across the Oceanic region and it was well-being,” she said.
“Well-being doesn’t come up in other principle frameworks as much as it does in our region. That was really fascinating. And so there are some comparisons there [with ESG].”
The next big thing
Kylie Frazer argues that founders need to think big in Machine Learning Operations (MLOps) if they want to attract VC investment.
“We are certainly seeing most pitches in that application layer. But we’re excited to get to the stage where we’re going to see more pitches in that MLOps area,” the Flying Fox partner said.
“But, A) we’re not seeing that many, and, B) here’s a secret: not many VCs in Australia really understand what that means.
“Now our friends at Microsoft and and some of the other hyperscalers are doing a really good job at bringing us up to speed as to what MLOps is going to entail and where value will be created, we are still trying to get our heads around who is going to capture that value.
“Is it going to be startups, or is it going to be the hyperscalers? Who’s building what tooling? So that is probably one of the reasons why there’s been a little bit of reluctance in Australia to invest as much venture capital into some parts of that AI value, but at the application layer, there’s certainly been some frenzy.
“Most of the funding over the last 12 months has gone into companies that are working in that AI application layer. The ones that are cutting through always have a clear and compelling customer need. We also look at the big picture policy considerations behind some of these areas.”
WATCH MORE: Highlights from AI Deep Dive
If you’re interested in knowing more about AI, the Microsoft for Startups Founders Hub helps startups radically accelerate innovation by providing access to industry-leading AI services, expert guidance, and the essential technology needed to build a future-proofed startup.
And if you’re keen to try about AI in your business M365 Copilot, is now available to businesses of all sizes.
If you want to know more about events like the AI Deep Dive happening at the Microsoft Reactor in Sydney, check it out here.
This article is brought to you by Startup Daily in partnership with Microsoft.
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