Why someone in a non-software/internet business would acquire an artificial intelligence (AI) startup?

Why someone in a non-software/internet business would acquire an artificial intelligence (AI) startup?

• 1.
  June 2018 Peter Zhegin Trendsand rationales. Why someone in a non-software/internet business would acquire an artificial intelligence (AI) startup?
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  Speaker introduction –Peter Zhegin 2 Venture Partner at Sistema_VC, an international venture capital fund with exposure to cognitive technologies. Sistema_VC’s investments include: • DataSine analyses transactional and biographical data to determine a customer's personality, needs, behaviours, and life situation; • GOSU.AI is an esports AI-driven training platform; • VisionLabs is a computer vision company focused on biometric face recognition; • Connecterra develops an intelligent dairy farmer’s assistant; • Others… Investor in AI Seed Fund. Previously: Flint Capital, Ozon.ru. Education: MSc Management, Leeds University Business School. MA History, Moscow City Pedagogical University.
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  Nils J. Nilsson,The Quest for Artifiial Intelligence: A History of Ideas and Achievements (Cambridge, UK: Cambridge University Press, 2010). Herbert A. Simon, “Arti cial Intelligence: An Empirical Science,” Arti cial Intelligence 77, no. 2 (1995):95–127. Deloitte University Pres, http://www.theatlantic.com/sponsored/deloitte-shifts/demystifying-artificial-intelligence/257/, ARTIFICIAL INTELLIGENCE AND LIFE IN 2030 There’s no universally accepted definition of AI Instead, AI may be considered as a set of technologies Definition 1: ‘Artificial intelligence is that activity devoted to making machines intelligent, and intelligence is that quality that enables an entity to function appropriately and with foresight in its environment‘. Definition 2: AI is ‘…a branch of computer science that studies the properties of intelligence by synthesizing intelligence’. 3 2 Selected definitions of AI
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  Conversation about AItransactions goes around Apple, Google, etc. https://news.crunchbase.com/news/ai-startups-take-money-run-big-tech-comes-acquiring/ https://www.cbinsights.com/research/top-acquirers-ai-startups-ma-timeline/ https://venturebeat.com/2018/03/10/google-and-apple-are-in-a-tight-race-to-acquire-the-most-promising-ai-startups/ 4 Selected press coverage of mergers and acquisitions (M&As) activity in AI
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  8 31 69420 0% 20% 40% 60% 80% 100% 1) earlier 2000 2) 2000-2005 3) 2006-2010 4) 2011-Now Tech giants/Serial AI acquirers Tech acquirers Emerging acquirers/Non-Software/Internet Total However, acquiring an AI company is becoming a mainstream 5 AI M&A deals by time period and the acquirer type, (n=528) Sistema_VC << Non-Software/internet acquirers << Other tech companies << Tech giants (Google, FB, Apple, etc.) 9% 3%
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  50%+ of AIM&As in non-software/internet took place in 2016-2018 6 AI M&A deals by non-software/internet buyers (n=42) Sistema_VC 1 2 1 2 1 5 13 16 1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
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  7 10 largest AIM&As by non-software/internet acquirers Sistema_VC Non-software/internet acquirers spent some big $ on AI
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  25 8 7 2 Technology/Product Customer centric Transformative Process optimization 8 Non-software/internetAI acquisitions by type (n=42) Sistema_VC AI fills gaps in a product portfolio, helps to build a holistic product offering. Acquisitions of complementary products or/and technology as elements of existing products; AI to help a customer to get more value out of an existing product. Acquisitions of tech within various elements of a value chain, e.g. its service element; AI to transform. Acquisitions of tech that radically transforms an existing product/industry; AI to improve internal processes. Acquisitions of tech that helps to cut costs, increase efficiency of internal operations, maybe w/o passing savings to clients. Technology/product acquisitions are popular ones, but other types do exist
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  9 AI acquisitions byindustry and type (n=42) Sistema_VC 5 10 10 4 3 9 1 42 0% 20% 40% 60% 80% 100% Robotics/vehicles Industrial equipment/machinery/services Healthcare Electronic devices Consumer Automotive Apparel Cross-industry average Grand Total 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Robotics/vehicles Industrial equipment/machinery/services Healthcare Electronic devices Consumer Automotive Apparel Cross-industry average Customer centric Process optimization Technology/Product Transformative # of deals The role of AI varies depending on a sector where the buyer operates
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  10 Selected examples Tech/product andprocess optimisation acquisitions VIDI Systems and Conex – Tech/product acquisition “Upon closing, ViDi Systems became part of Cognex’s Vision Products business unit, where their deep learning software will continue to be developed and integrated into the Cognex product portfolio”. MOTIVE Drilling Technologies and Helmerich & Payne – Process optimization acquisition “… directional drilling process has been an industry focus for some time given ...greater accuracy, resulting in a better quality wellbore. We believe MOTIVE’s directional drilling technology to be leading edge and high-potential for the industry”. https://www.cognex.com/en-hu/company/press-releases/2017/cognex-acquires-maker-of-deep-learning-software-for-industrial-machine-vision https://globenewswire.com/news-release/2017/05/22/994848/0/en/Helmerich-Payne-Inc-Announces-Acquisition-of-MOTIVE-Drilling-Technologies-Inc.
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  11 Selected examples Customer centricacquisitions Blue Belt Technologies and Smith & Nephew – Customer centric acquisition “… Blue Belt is its “most successful” implant sales partner… ”. Blue River Technology and John Deere – Customer centric acquisition “This precise targeting ultimately reduce chemical usage by more than 90%, resulting in cost savings to the farmer and fewer harmful chemicals in our soil”. https://medium.com/@dcvc/john-deere-acquires-blue-river-technology-for-305-million-bringing-full-stack-ai-to-agriculture-7ca8c25a5fe1 www.massdevice.com/smith-nephew-closes-275m-blue-belt-buy http://www.loreal-finance.com/eng/news-release/loreal-acquires-modiface-further-expanding-its-worldwide-expertise-in-beauty-tech-1247.htm Modiface and L’Oreal – Customer centric acquisition “…[the startup] will support the reinvention of the beauty experience around innovative services to help our customers discover, try and chose products …”.
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  12 Argo AI andFord Transformative acquisition “The next decade will be defined by the automation of the automobile, and autonomous vehicles will have as significant an impact on society as Ford’s moving assembly line did 100 years ago”. https://media.ford.com/content/fordmedia/fna/us/en/news/2017/02/10/ford-invests-in-argo-ai-new-artificial-intelligence-company.html
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  Conclusion 13 1. Acquiring anAI startup is becoming more popular among non-software/internet companies; 2. Some of them pay billions for startups; 3. AI startups appear to help acquirers to pursue several goals, namely: • Fill product/tech gaps; • Increase value of existing products; • Optimize processes; • Transform businesses. 4. Choose an acquisition target carefully and having clear goals in mind.
• 14.
  Thank you! Peter Zheign pz@sistema.vc