Apr 20, 2025 M&A

AI or Smoke-and-Mirrors? Spotting False AI Claims Before You Sign the LOI

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The AI gold rush is well underway. So is the noise.

Gartner tracked over 1,000 vendors marketing "AI-powered" products in the past 18 months... many of them little more than rules-based workflows dressed up with buzzwords. Meanwhile, a 2025 McKinsey survey reports that only 1% of global companies consider their AI capabilities mature.

That gap between marketing and reality is your risk. As a buyer or investor, you're often being asked to pay an innovation premium for tech that isn't real, scalable, or defensible.

The AI Reality Check: What Due Diligence Must Include

If you're looking at a company pitching AI as part of its value story especially pre-LOI, there are five areas where you need hard evidence, not hopeful claims:

Most AI projects die after pilot stage. You need to be sure what you're seeing is built to last, and tied to revenue.

Translating Tech Hype Into Board-Level Risk

Boards don't want another glossary. They want clarity. That means translating AI claims into three questions:

If the answer isn't yes to all three, the AI shouldn't justify a premium valuation.

Key Takeaway

AI-washing is real, and expensive. You don't want to find out after the close that the "platform" is just a thin wrapper around ChatGPT and some Zapier flows.

Before you sign the LOI, get clear on what's real and what's not.

Read next Why 88% of AI Pilots Fail, and How to Beat the Odds