Facebook. Google. Apple. Microsoft. And now Intel. All of the industry giants have dedicated teams training their artificial intelligence tech on the massive datasets generated by their popular services. Some of these products have been well received after being seamlessly integrated into the companies' offerings. Facebook’s newsfeed likely ranks as the most familiar example of this dynamic in action. Its algorithm "learns" from user behavior to offer what it "thinks" are the most relevant posts. But other products haven't gone over as well. For an object lesson in utter failure for tech reared in this space, look no further than Microsoft’s botched Twitterbot Tay, which started to spout some less-than-PC comments the day it went live.
As VC investment in AI has heated up over recent years, so too has corporate interest in buying AI startups. Before 2014, there hadn't really been an impressive amount of acquisition activity here, but that year saw an uptick that has continued into 2016. That first year of increased M&A activity was crowned by Google’s purchase of DeepMind in a deal reportedly worth more than $500 million. Recently, Twitter announced the $150 million purchase of Magic Pony, a company that developed machine learning technology (a subsector of AI) for visual processing.
Venture capital and M&A activity are great ways to gauge how hot the AI industry is. Another is the price paid for acquired companies, which can also reflect the cost commanded by the target's talent. A tech-industry standard for "acqui-hires" (acquisitions of a startup's team, not necessarily its tech) is roughly $1 million per employee. But this figure can flex depending on the seniority or quality of the teams.
If you look at the prices being paid for AI companies and compute the cost-per-employee metric, you’ll find figures far above the $1 million mark. For example, DeepMind was said to have around 75 employees when Google picked it up in 2014. If the deal closed at the rumored amount, that would put the cost per employee at an eye-popping $6.66 million. Magic Pony is said to have had a team of 14 when it was acquired by Twitter—$10.7 million per employee.
We've seen VC investment in AI trend upward in recent years. High demand for AI tech and the teams behind it from larger acquirers has the potential to fuel even more interest, as exit opportunities are among the major factors VCs consider when investing in a space or a company.
Interested in digging into more data around artificial intelligence M&A?
Contact us today for a tour of the PitchBook Platform.
Join the more than 1.5 million industry professionals who get our daily newsletter!