If you want to see what 21st century leadership looks like and where it is, I suggest turning your gaze toward venture capital in artificial intelligence. Certainly, it’s no surprise that VC money is pouring into AI, but where and how much is the story. Here’s that story.
First, a disclaimer. This is not a finance, investment, or technology story. Those are not my areas of expertise. This is a leadership story in the most intriguing sense, as the issue of AI is no longer new. If Alan Turing played around with it in the 1940s, Arthur C. Clarke and Isaac Asimov wrote about it in the 1950s, Stanley Kubrick made a film about it in the 1960s, and IBM introduced the first commercial application of Watson in 2013, then AI is nothing new. The leadership story within AI is about who’s enabling the highest degree of creativity and innovation. And that, of course, like contrast dye in an MRI, can be best traced by following the money.
You said how much VC money again?
According to the Organization for Economic Cooperation and Development (OECD), 21% of the share of global VC investment in 2020 (most recent compilation) went into AI, an estimated $75 billion. This is radically up from a 4% share equal to $3 billion in 2012. VC investments in AI increased by 20% in the last one year of the study alone. Obviously, leadership in AI articulated their vision and articulated their message skillfully enough to create such a dramatic shift in the fundamental makeup of global VC in AI.
The OECD notes that their study “analyzed venture capital (VC) investments in 8,300 AI firms worldwide, covering 20,549 transactions between 2012 and 2020, based on data provided by Preqin, a private capital-markets analysis firm in London.”
Where’s the money going?
The United States and China attracted more than 80% of that global total – Who says there’s no AI war going on? – followed by the EU at 4% (mostly Germany and France), and then the UK and Israel at 3% each. Keep in mind, this is VC money only; organic investment is not included in this study.
Growth in VC investment in AI
Growth in AI investment in US-based firms has been steady since 2012, reaching $42 billion in 2020 (57% of the global total). Investment in Chinese firms experienced a spike in 2017 and 2018, followed by a slump in 2019, representing $17 billion in 2020 (24%).
VC investment by industry
AI users and AI investors want to know where, specifically, all this money is flowing. The study reveals three leading industries:
1. AI companies that are developing driverless vehicles and related mobility technologies were the show’s main attraction, drawing $19 billion of VC money in 2020 and a total of $95 billion from 2012 to 2020. The OECD notes, “Those figures demonstrate the belief in AI’s huge potential to solve critical mobility and transportation challenges in future.” Ninety-eight percent of those investments were made in companies in China and the United States. We should note that the leaders of these companies are the ones to keep a close eye on.
2. The second biggest sector for VC investment was healthcare, pharmaceuticals, and biotechnology, attracting 16% of the total in 2020. Investments in these related industries doubled from $6 billion in 2019 to $12 billion in 2020 alone, partly due to the COVID-19 pandemic. The pandemic, it turns out, was a catalyst for growth. Who knew?
3. Business services, broadly defined, ranked third in VC investments in 2020, accounting for 11% of the global total. This was surely in answer to the need to create more efficient processes and more widespread automation.
What to watch for in VC investment in AI
1. More timeliness in reporting.
The standards have been set, so frequency must now prevail as change accelerates.
2. Who are the real leaders?
Extrapolating from data to analyze more data is futile. The investment trends will reveal and validate who the AI leaders are.
3. New streams.
The hegemony enjoyed by the United States and China will erode, to some extent. The key question is, to whom? That will tell us not only where the technology is, but also where the leadership is.
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