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Even as funding drops, AI sees record number of deals in Q1

AI space sees VC dollars drop four of the last five quarters

Financial trends and news by Steven Loeb
April 6, 2016
Short URL: http://vator.tv/n/4493

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Even as some of the biggest companies, including Facebook, Google and Amazon, have been making big bets on artificial intelligence, the space itself seems to having a weird moment when it comes to venture capital, as dollars have been dipping. 

The space saw another big decline in Q1, dipping 18 percent quarter-to-quarter to $83 million raised, according to new data out from CB Insights.

Though it should be noted that the $83 million invested happens to be the largest amount the space has since the first quarter of 2015, the downturn in funding is not new. In fact, this is the fourth quarter out of the last five to see a decline in venture capital funding.

AI is also coming off a year where VC dollars fell by over 20 percent. In 2015 there was $310 million invested, down from $394 million in 2014. It should also be noted that the reason that 2014 saw so much funding was the result of one company, Sentient Technologies, which raised $103.5 million in November of that year, leading to a record $201 million quarter for the AI space.

Meanwhile, even as the dollar amount is decreasing, the number of investments has been increasing, going up in each of the last three quarters. In Q1 the number jumped 12.5 percent, from 24 deals to 27, the highest number of deals the artificial intelligence space has ever seen.

Deal have more than doubled since there were only 12 in the second quarter of 2015. 

A larger number of deals, and less funding, obviously points to smaller rounds. Indeed, the vast majority of deals in the AI space since the beginning of 2011 have been in early stage companies. There have been over 80 companies that have raised either seed or angel rounds over the last five years, and over 40 startups that have raised Series A rounds.

Given the newness of the space, it's not surprising surprising that late stage deals are virtually non-existent, equally less than 1 percent of all AI startups that raised funding.

The good and the bad of AI

Artificial intelligence is a controversial subject, and depending on who you talk to, its either going to be the death of us all, or it's going to elevate the human race. 

At our Post Seed event last year, for example. Vinod Khosla also talked about machine learning and automation, predicting that AI will cause steep income disparity.

"If you don't need farm workers on a farm, if you don't need hamburger flippers at a McDonald's restaurant, nobody to cook the food or take the orders. If don't need legal researchers in a law firm. If you don't need radiologists in a hospital. I'm purposely covering a very broad range," he said.

"Look all these functions. They're all easily automatable. And what I prophetize is more than 50 percent of jobs today will disappear. That's a problem because of the income disparity, or inequality, unless we do something large."

Regular people are plenty afraid of AI as well, though for different reasons. They think that that it will eventually take all of our jobs, and within man of our lifetimes.

Mark Zuckerberg, though, is a big believe in the idea, revealing in a Facebook post earlier this year that his goal for 2016 is to "build a simple AI to run my home and help me with my work." 

He also sees big potential in this technology for Facebook going forward. 

"At Facebook I spend a lot of time working with engineers to build new things. Some of the most rewarding work involves getting deep into the details of technical projects. I do this with Internet.org when we discuss the physics of building solar-powered planes and satellites to beam down internet access," he wrote.

"I do this with Oculus when we get into the details of the controllers or the software we're designing. I do this with Messenger when we discuss our AI to answer any question you have. But it's a different kind of rewarding to build things yourself, so this year my personal challenge is to do that." 

He recently demonstrated the good it can do by incorporating AI technology to help blind people get audio descriptions of photos on the Facebook app. 

(Image source: quillette.com)


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