The Rise of AI Startups
Wed, April 21, 2021

The Rise of AI Startups

An increasing number of companies has now adopting AI in their work to improve their products and services / Photo Credit: 123RF


“For many people, artificial intelligence, or AI, is a mere concept, something that will happen in the future. But, in reality, AI has already become a part of mainstream businesses,” Michael Georgio, CMO of the Imaginovation AI development company, said. 

AI has become one of the main drivers of economic competitiveness throughout the years. Many large companies are using the technology to innovate their systems and improve their services. Today, we are seeing more and more AI startups in the market – a new breeding ground for new technologies such as natural language processing, image recognition, and more. For many startups, AI is a godsend to them, leveraging its tools to gain a competitive edge and scale up the business.


The Rise of AI Startups

In 2018, the funding for AI-focused companies reached approximately $9.3 billion in the US, an amount that’s projected to rise as more businesses realize the transformative nature of AI. AI startups are those businesses whose core is AI modern technology. At the same time, they provide AI infrastructure and tools such as cloud services for AI applications, AI specialist hardware, or tools to accelerate the implementation of AI solutions.

Forbes, a global media company focusing on business, investing, technology, entrepreneurship, leadership, and lifestyle, reported that the funding to AI startups in Q2 of 2019 across the world totaled to $7.4 billion in 488 deals – an increase from only $5.2 billion in Q1. In the first half of 2019, over $803 million had been invested in 43 venture capital (VC) deals worldwide, an increase from last year’s $1.7 billion. These deals involve the application of AI and machine learning in cybersecurity. 

A 2018 report by global consultancy firm Roland Berger analyzed around 3,500 firms across the world to generate the first comprehensive dataset on AI startups and their global distribution. The findings showed that the US had the most AI startups with 1,393 startups or 40% of the global total number. This was followed by Europe with 769 or 22% of startups, China with 383 or 11%, and Israel with 362 or 10%. These figures show a rapid increase in AI startups. Some of the reasons for this include deploying AI for customer experience (40%) and automating tasks (20%). 



Building an AI-Based Startup

Dan O'Connell, chief strategy officer and GM of VoiceAI at Dialpad, shared three important elements of building an AI company. The first is to hire a team with a diverse combination of product development expertise and academic experience. This combination plays an integral role in building models, designing features, and bringing them to market. The second is to set realistic expectations regarding what your products or services can and can’t solve or offer. Lastly, it is important to interact directly with customers and the features they're building. 

Also, Pini Yakuel, the CEO of Optimove, stated that AI startups should take into account more of the business problem they are solving instead of just having an ability to perform better in math. “What can increase chances of success, is knowing that a certain industry challenge has a strong likelihood to be solved ‘well enough’ with an AI approach. For that, you need to excel at defining and framing the problem you are out to solve. Your creativity and expertise will be your trump card, not a better algorithm,” he said. 

According to TechCrunch, an American online publisher focusing on the tech industry, AI startups need to articulate that they are solving a large and important problem. They need to prove to their customers that they have the best solution or services compared to the one they are using now. “The essence of a successful start-up is solving a problem that a large enough universe of customers understand themselves to have. Telling that story effectively is how a company wins. AI can be the adjective but it’s not the noun,” Dimitri Sirota, the CEO and co-founder of BigID, said. 

At the same time, they need to show why their solution offers superior value to competitors in the market. AI startups should make sure that they can explain how their technology works and what their advantages are, relative to existing competitors. They need to demonstrate that their data is secure, reliable, and compliant with all regulatory rules. This is particularly important because AI has been facing ethical, security, and privacy issues for several years now. This could attract more people to trust a business. They also must become more responsive proactive, responsive, and consistent. 


Companies should provide their customers with the best solutions depends on what their needs / Photo Credit: 123RF


How AI Startups are Competing Today

AI startups need to plan thoroughly for their business to be effective. Aside from that, they also need to compete with larger tech companies in the market. There are several advantages that huge incumbent tech firms have, including having complementary assets, established markets, and access to large amounts of data. However, having bigger datasets doesn’t mean that they will succeed. It would still boil down to execution, which startups can master.

According to Harvard Business Review, a general management magazine published by Harvard Business Publishing, AI startups are slowly climbing to the top through building large datasets, which large tech companies like Google and Amazon have. Now, most of their data comes from their own customers. A report showed that 80% of AI startups use their customers’ data, 63% use third-party public data, and 51% use their own proprietary data. 

One thing that AI startups can do better than large tech companies is helping mid-sized companies. These companies usually rely on commercial AI applications sold by startups because they can’t afford to develop their own AI. Tapping large tech firms is a challenge because they require large fixed investments. Thus, small and mid-sized companies turn to AI startups because they can meet their needs. 

Indeed, AI startups have a lot of potential to grow more. They just need effective planning and the right tools to compete with other tech firms.