With the COVID-19 pandemic outbreak, businesses are at a halt, and that has created a significant impact on the artificial intelligence-based startups, who are continuously struggling to stay afloat amid this downturn. In fact, a recent report has confirmed that 90% of tech startups, including the ones working with artificial intelligence and machine learning, in the country, are facing a significant decline in revenues due to the impact of COVID-19 pandemic. And approximately 30-40% of those startups are in the process of closing down due to halted operations and having no financial back up to continue the business.
This pandemic has injured the backbone of the economy, which, in turn, poses a lot of dilemmas for investors to finance businesses amid this crisis. Venture capitalists have already warned startups about the difficult times ahead. According to Reuters’ survey, five VCs have mentioned that “only a few of the best companies from their existing portfolios would be able to get further funding, while most new ventures will likely be locked out for the foreseeable future.” Consequently, AI startups are scrambling to keep up their business, manage customer projects as well as their employees, and therefore many of such companies are getting significantly hit. Such an immense shortage of funding is heavily impacting the industry of AI startups, which again leads to either laying off people or filing bankruptcy to close down the companies.
While big companies have experienced unprecedented times in the past, for artificial intelligence startups, this COVID-19 pandemic has been novel and nothing to be compared with. The pandemic has altered the world, and consequently, AI startups should also adapt to this situation with necessary measures.
Consolidation or even worse, getting acquired by big tech giants could help AI startups survive this pandemic. In fact, in recent news, Apple has acquired machine learning startup, Inductiv Inc., in order to enhance its Siri capabilities. However, prior to that, the company also bought in AI startups — Xnor.ai and Voysis to improve its other features. In another news, Bharti Airtel has announced acquiring 10% stake in Gurgaon-Based AI startup — Voicezen. This shows how tech giants are gobbling up the AI startups, eliminating their future competitors; however, this could be the only way out.
How consolidation of AI startups could be the key
Amid crisis, consolidation of businesses, merging with another business, or getting acquired by another company is probably powerful and productive for an AI startup to keep their business sustainable. Although AI is gaining its momentum in this uncertain time, with funding drying up, it gets difficult for them to survive with limited capabilities.
In fact, Lane Lillquist, cofounder and CTO of InCloudCounsel, a legal tech company, believes that considering developing artificial intelligence is an expensive matter as it requires continuous funding, “makes AI technology more likely to get developed by big players of the tech industry.”
This economic downturn has brought in the opportunity for AI startups to re-think their business strategies. Although during the developing stage, no AI startup would opt for an M&A, however, not all consolidation can hamper the independence of the startup, it can also push high-value partnership, where businesses can share their resources and can also bring down unnecessary costs — the uncertain times call for creative measures. Amid this crisis, the opportunities of consolidation of AI businesses can never be more beneficial for companies.
The lack of experience in handling any sort of economic downturn can act as a significant disadvantage for AI startups. However, with the consolidation of businesses, artificial intelligence startups can share the strengths of another company and can omit their weaknesses by collaborating with their mergers. By combining the efforts of two companies and exploring their strengths, business leaders of AI startups can make this pandemic situation less grievous for themselves. Such mergers would also help AI startup leaders to stay afloat and stable their finances during this crisis.
Considering major VCs are backing down their investments on AI startups, it brought in the urgency for startups to maintain profitability for their business, which not only helps them survive this pandemic but will also assist them in the post-COVID world. Therefore, to breakeven, AI startups need to realise the potential of consolidation, where two companies can collaborate to keep their bottom line safe. “It’s time to consolidate and utilise each other’s assets to deliver,” said the founder of a startup, Pee Safe — Vikas Bagaria to the media.
Agreeing to that, Shuvi Shrivastava, Vice President of Lightspeed India, also stated to the media, “I think consolidation, in general, was expected this year.” She further added that the trend of acquisition has already started to grow in countries like the US, and soon it is going to penetrate the Indian market.
Also, with technology giants continuously looking to create their position in the emerging technology sectors, they are snapping up AI startups to enhance their services. In fact, in recent news, Google has accepted that it has been on a spree of acquiring AI startups since 2009. Also, Microsoft, Amazon and now Apple have been trying to expand their AI capabilities by acquiring novel startups. M&A are the ways for big players to integrate emerging technologies into their products and services without having to develop the technology on their own.
Like in recent news, ShareChat, an Indian social networking service, backed by Twitter, has announced that the company has been looking to acquire AI & ML startups in order to “add capabilities that will assist in getting better user attention, faster go to market, lift user engagement and serve content the right way,” said ShareChat’s VP of corporate development and strategic finance, Manohar Charan to the media.
Also, usually AI startups have shorter runways, and with pandemic outbreak things have gone wrong for the whole sector. Therefore, many of the seed funded AI startups have reduced their evaluations and are looking to get acquired by big companies.
The trend of AI startups consolidation is likely to continue as companies are scrambling to keep their businesses sustainable amid this crisis. Not only it will help secure businesses for newer AI companies but will also provide enough aid to tech giants who are willing to strengthen their position in the AI world.