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April 19, 2017

AI Investments Surge


Investors flocked to artificial intelligence startups during the first three months of 2017, with quarterly venture funding again topping $500 million, according to a venture capital tracking report.

PricewaterhouseCoopers and CB Insights reported more than 1,100 deals during the first quarter, with venture investments totaling $13.9 billion. Those totals represent a “slight recovery” from the fourth quarter of last year, with total investment dollars rising 15 percent on a quarterly basis.

The market trackers said the first quarter results show that “investment continues at a moderated pace” after venture funding in areas like big data began to slow last year. CB Insights’ CEO Anand Sanwal noted that the previous year “was irrationally exuberant and the 2016 pullback was a reaction to that. However, 2016 was more of a soft landing than a wholesale popping of the venture bubble [that] pundits have been predicting since 2009.”

Among the winners in the quarterly survey was the AI sector, where deals reached a two-year high. The survey identified 90 investments in the AI sector totaling $820 million. Quarterly funding for AI startups has exceeded $500 million in seven of the last eight quarters, the researchers reported.

Nearly half of those investments were in California-based startups, with “seed” funding for startups transitioning to later-stage investments, which reached their highest total since the second quarter of 2015. The results may reflect maturing AI technologies and the beginning of product introductions as a growing list of technology companies also pour funds into AI research efforts.

“We are seeing AI investments in deep learning and generalized use of machine learning platforms, in addition to continued broad application by firms in the cyber-security and digital health” sectors, said Anand Rao, a PricewaterhouseCoopers analyst.

Other market forecasters also have highlighted AI as an emerging feature in many applications. Among them, IDC predicts that 75 percent of developer teams will include “cognitive/AI functionality” in new applications by 2018.

Among the largest AI deals during the first quarter was $54 million investment in Boston-based DataRobot, developer of a machine-learning platform for speeding deployment of predictive models.

The largest AI deal over the last three months was a $75 million investment in Santa Clara-based SoundHound, an audio and cognition specialist that uses AI technology in a “music recognition” mobile app.

While Internet-related investments dropped during the first quarter, the sector remains the top investment magnet with 485 deals worth $5.2 billion. The healthcare sector ranked second with 190 deals valued at $3.7 billion.

Leading AI investors during the first quarter included Silicon Valley mainstays Kleiner Perkins Caufield & Byers and Andreessen Horowitz along with the investments arms of Microsoft (NASDAQ: MSFT) and Samsung Electronics (KRX: 005930).

Microsoft Ventures also joined a funding round in mid-March that raised $10 million for cloud-based predictive analytics startup Prevedere.

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