News & Analysis

Every year the tech industry sees new industries rise while others fall by the wayside (remember cleantech?). What’s hot in tech, it seems, changes with the seasons. Not long ago, there was the era of ecommerce-driven social platforms—a la Pinterest and Wanelo—then came fintech and blockchain, and now it looks like we’ve hit the summer of artificial intelligence.

Although AI has been thrust into the spotlight somewhat recently, with tech giants devoting entire teams to its research, the idea and iterations of the technology have been being worked on for almost half a century now. So why the sudden uptick in interest by corporations, investors and startups?

In recent years, there's been a handful of technological advancements that have given rise to the budding industry we’re seeing today, most notably the proliferation of large datasets created by software-based companies and an increase in computing power needed to analyze this data at scale. A great primer on the history and types of AI is given here by Frank Chen of Andreessen Horowitz.

This perfect storm of technology has had investors foaming at the mouth, and 2014 marked a banner year for VC investment in US-based AI startups, with capital invested and deal count increasing YoY by 183% and 41%, respectively. Deal count continued its rise into 2015, while capital invested took a bit of a dip, although this trend is consistent across VC investment in many industries. And even with a lot of talk of a cooling in venture capital this year, investment in AI has stayed rather resilient—even increasing. In 1H, AI startups garnered $704 million of venture capital through the completion of 79 deals, which puts 2016 on pace to break records for both capital raised and deals completed.

Looking at a breakdown of round types helps paint a picture of AI's maturity. Of the 79 deals done in 2016 so far, 48% were seed rounds. When compared to a more established industry such as SaaS, which saw seed deals account for 26% of rounds, it's apparent that AI as a sector has really just started to pick up steam.
 

Marc Andreessen famously stated in 2011 that "software is eating the world." That commonly repeated trope could probably be edited nowadays to "smarter software is eating the world." While there has been quite a bit of VC investment in AI startups the past couple of years, don't be surprised to see the upward trend continue moving forward.

As software penetrates and disrupts more and more industries, so comes opportunity for AI to be applied, learning and optimizing as it goes.

PitchBook Platform users can access our full dataset on VC investment in the U.S. AI industry.