Chris Middleton sets out the scale of the challenge facing nations that want to compete with the US in kickstarting AI entrepreneurship.
In the public’s mind, US technology startups are most strongly associated with states such as California, Texas, and Washington, and cities such as San Francisco, San Mateo, Houston, or Seattle. In areas such as artificial intelligence (AI), machine learning, and autonomous systems, these are the locations that typically spring to mind, along with the FAMGA giants (Facebook, Amazon, Microsoft, Google, and Apple).
However, new research from analyst firm CB Insights finds that there are flourishing venture capital-backed AI startups in 43 US states – 86 percent of the country.
The company has produced a table that comprises the most invested startup in each of those 43 states. Between them, the 43 firms have raised nearly $9.9 billion in disclosed equity funding.
In 38 of the states, the best-funded startup has received VC investments of over $1 million to date, with even the least well-funded startups in the list of 43 top state performers receiving investments of $100,000+.
However, funding in the region of $1 million is at the lower end of a scale in which 15 companies have each been backed to the tune of over $100 million. Thirty-one of the startups in CB Insights’ list (see below) have each raised more than $10 million.
Seven of the best-funded startups by state are now unicorns (worth over $1 billion). Just to emphasise, the analysts’ research focuses just on the best-funded startup in each state, so there are countless others jostling for position in many high-tech locations.
Across the entire US market, AI investment records continued to tumble in 2020, despite the pandemic and an overall slump in deals: AI companies raised a total of $33 billion in VC investments last year.
While there is no guarantee that any of them will succeed in the long run, the extent of US investments, both geographically and financially, is a lesson to other countries. Centring innovation just in the capital or in a handful of university cities is not enough if your ambitions are global, especially as the broad US approach creates a national centre of gravity that attracts entrepreneurs from elsewhere.
As the world’s biggest English-speaking market with accelerator programmes and industry bootcamps in healthcare, space technology, aerospace, financial services, and more, the US is still the one to emulate.
Within the country, some states seek to attract businesses from others to lower-cost locations that can still offer skilled workers. Some have created accelerator programmes that connect companies with investors and potential clients, and these offer incentives to set up locally and create new jobs.
Much of the US tech market revolves around the concept of speeding products from development, through testing, to customers with as few obstacles as possible, and creating new local employment opportunities on the back of that rapid development cycle.
The situation in AI certainly mirrors that in other parts of the high-tech industry, such as financial technology (FinTech), where multimillion-dollar VC-backed startups are also found in 43 US states. According to separate CB Insights research, 54 percent of the world’s top 250 FinTech companies are now in the US, so the approach is clearly paying dividends.
For the UK, which wants to lead in both FinTech and AI, figures like these must be eye-watering. Whitehall’s recent AI Sector Deal, a mix of government and private funds, was worth just $1 billion for the entire country – that’s less than the valuation of any US unicorn startup in this sector.
This large-scale portfolio model – back lots of companies in the belief that some will succeed well enough to cover any losses – is matched only by China. There, both the Beijing government and wealthy entrepreneurs such as Jack Ma are pouring billions of dollars into establishing Chinese dominance in similar areas, such as AI, machine learning, robotics, and autonomous systems.
Back in the US AI sector, new AI-powered ventures are growing across a number of different areas, including healthcare, retail, and marketing.
The most well-funded AI startup on CB Insight’s heat map is New York-based robotic process automation (RPA) provider UiPath, with almost $2 billion in disclosed equity funding. The company is now valued at $35 billion.
California-based driverless delivery company Nuro ($1.5 billion in funding) and Massachusetts-based agricultural tech startup Indigo Ag ($1.2 billion) are among the other strong performers.
The past year has seen some major investor exits in the space, notably Amazon’s $1.2 billion acquisition of autonomous driving startup Zoox in June, medical imaging unicorn Butterfly Network‘s $1.5 billion public market debut via its merger with Longview, and risk analytics company QOMPLX‘s $1.4 billion merger. The latter two deals both took place this year.
THE TOP-FUNDED ARTIFICIAL INTELLIGENCE STARTUPS BY US STATE
|Company||State||Total equity funding ($M)|
|Benson Hill Biosystems||Missouri||277|
|Descartes Labs||New Mexico||58|
|VEDA Data Solutions||DC||11|
|Position Imaging||New Hampshire||5.9|