by Timo Polman and Job Scheltema
Research funding and investment in start-ups concerned with Artificial Intelligence (AI) has seen a significant increase recently. This development has gone hand in hand with a surge in the number of start-ups that claim AI capabilities and expertise. While often indistinguishable from the outside, research1 has shown that almost half of all these claims are at least misleading and sometimes even entirely false. Without a thorough understanding of AI, it is virtually impossible to separate real from fake AI. For this reason, BLOOM has launched its Artificial Intelligence Due Diligence service. BLOOM supports investors in the Due Diligence process by clearly laying out the relative merit of a target’s AI-capabilities.
Growing investment in AI
AI is booming. Advances in computing power, increased availability of large amounts of data, and ever-progressing theoretical understanding have led to many AI-driven innovations. Research1 shows that in 2013, one in fifty new start-ups put AI at the core of their value proposition, while in 2019, one in twelve did. At the same time, public funding of AI-focused research and private investment in AI start-ups is at an all-time high. After hitting $16.8 billion in 2017 and $22.1 billion in 2018, the annual global investment in AI start-ups reached a new record of $26.6 billion in 2019.
Clearly, there is lots of buzz around around AI – among entrepreneurs and investors alike. This is only further substantiated by research from UK investment firm MMC Ventures1, which suggests that startups with an AI component attract as much as 50 percent more funding than other software companies.
Artificial AI on the rise
An unfortunate side-effect is that start-ups now have a strong incentive to emphasise, exaggerate, or even lie about the role of AI in their business in order to secure funding. A complicating factor is that a high level of understanding is needed to distinguish low quality or irrelevant AI implementations from implementations that add to a company’s core value proposition and competitive edge. Research1 suggests that approximately 40% of all “AI” start-ups either have no AI expertise at all or only use AI in their business far away from their core value proposition. For example, an Indian start-up claimed to have built an AI-based service that allowed customers to build phone apps without programming knowledge. After already securing a large investment from SoftBank, it turned out that the firm relied on human software engineers rather than AI – their AI-based app development system turned out to be entirely imaginary.
“ …the company, which has attracted nearly $30 million in funding from a SoftBank-owned firm and others, is reportedly relying mostly on human engineers, while using hype around AI to attract customers and investment.”
Wall Street Journal (via The Verge)
Detecting unfounded claims
Investing in a seemingly promising AI start-up only to find out their AI expertise was heavily exaggerated, can be a rather costly affair. Unfortunately, asking the right questions to find out which start-ups are the real deal, requires a deep understanding of Machine Learning. For this reason, BLOOM supports investors and companies that are interested in acquiring a target that claims to leverage AI and/or Machine Learning for its business.
BLOOM is an expert in the field of Machine Learning and Artificial Intelligence. AI applications recently developed by BLOOM include quote estimation software for moving companies and a dynamic pricing algorithm. In addition to technical expertise, BLOOM is equipped with a strong understanding of strategy, shaped by previous consulting work for many start-ups and scale-ups, and vast experience in digital Due Diligences. Combining our hands-on ML expertise with our digital strategy background, enables BLOOM to assess the true value of AI in a company. Using a Technology-Organisation-Defensibility framework, BLOOM benchmarks the potential target against the current best-in-class practices in several key performance areas and provides short-term and long-term recommendations.
“In an AI-Due Diligence, BLOOM takes a holistic view of AI and considers both Machine Learning development practices, fitness-for-AI of company structure and skills, as well as defensibility of data and knowledge. This ensures BLOOM takes into account the true business value of AI to the target, rather than only assessing the technical quality of an AI application.”
— Eric Klaassen – Co-founder BLOOM
This article was based on market analyses by BLOOM. Data gathered from: 1MMC Ventures – The state of AI 2019: divergence, The Verge, The Wall Street Journal