VC Investments in Artificial Intelligence
We are living in the decade of artificial intelligence (AI) (see my post here). AI will change every industry in this decade. With the AI Fund we are investing in Applied AI Startups from Europe as many of them are still undervalued.
It seems we are not alone with this view.
A new report by the OECD shows that AI startups have attracted more than 20% (or 75 billion USD) of all Venture Capital (VC) investments last year. This is up from only 3% (or 3 billion USD) in 2012 – a 28-fold increase.
Looking at the details we can see that in 2020, 49% of all VC investments in startups in Israel were in AI startups, compared to 26% in the United States, 19% in China and only 12% in the EU27.
For this study the OECD has analyzed over 20000 investments in more than 8000 AI startups worldwide from 2012-2020.
In terms of AI investment in 2020 Europe is still far behind: more than 80% of the AI investments from VCs went to the US (57%) and China (24%).
But this is only half the story.
If we look at the trend over the last years we can see that from 2012 through 2018, around 90% of AI VC money was invested in US-based and Chinese startups. But the trend started to change 2 years ago. In 2019 and 2020 the share of AI startups based in other countries grew significantly, reaching 20% of investments in 2020. In 2019 and 2020, startups in the EU27 received almost 5% of the VC investments in AI startups, while UK startups collected a little more than 4% of the total value. In the EU27, Germany and France are the biggest markets with 2/3 of all investments
And there is more momentum for Europe. While we see only 5% of the total VC money invested in the EU27 the number of deals with AI start-ups in the EU27 represented 11% of all deals.
In line with our investment thesis we can see more and more AI startup deals in Europe and a growth of the overall value of AI startup investments here.
Another interesting aspect to look at is the industry focus of AI investments.
On a worldwide bases most investments in 2020 went to “Mobility” including “autonomous vehicles” (25% of the 2020 investments and over 95bn in total 2012-2020). “Healthcare and Biotech” is the second biggest investment area with strong growth especially in the last years (16% of the 2020 investments – growing from 6bn in 2019 to over 12bn in 2020).
“Business Process and Support Services” are gaining traction and ranking third place in 2020 with 11% of all investments followed by “Financial and Insurance Services” (7%) and “Robots, Sensors and IT hardware” (7%).
While it is no surprise to see most money go to Mobility and Healthcare (mostly driven by a few very large investment rounds) we can also see the adoption of AI across industries ramping up – driving investments in cross industry areas like Business Process Services or Robotics.
There are many more details to explore in the report if you are interested.
And if this is not enough – just look at the lastest global numbers in CB Insights AI report. In the 3rd quarter of 2021 AI startups raised a staggering 17.9B US$ in funding across 841 deals. There are 138 Mega Investment rounds in 2021 so far (100 M US$ and more) – which is a 75% increase compared to last year. And we saw over 250 M&A Exits in 2021 so far. All of these are record numbers so no wonder there are now 119 AI Unicorns worldwide – a 59% increrase from Q3 last year.
Conclusion: It is the right time and Europe is the right place for smart AI investments.