To set your AI strategy, follow the money

Artificial intelligence is viewed as one of the biggest disruptors around. In fact, in our 2019 survey of business leaders, 62% of CEOs predicted AI would have a bigger impact on the world than the internet. And in the US, 80% said it will significantly change the way they do business.

That’s why it’s so important to tune into the signals that indicate where and how this impact will be felt. Take the boom in venture capital. It has big implications for every company, not just those considering AI investments or acquisitions. By looking at where VCs are investing, you can scout out where startups are developing solutions for your business problems — and find the capabilities and talent to make those solutions a reality.

Mapping out the money flow

VC funds poured $9.3 billion into privately held AI companies in the US in 2018, up 72% from the $5.4 billion of 2017, according to the PwC / CB Insights MoneyTree™ Report. The fourth quarter showed a slight slowdown compared to the third ($2.4 billion vs. $2.7 billion), but that’s still strong compared to the fourth quarter of 2017 ($1.47 billion). Acquisitions are surging too: $5.4 billion worth of AI-related M&A of US-based, VC-backed startups took place in 2018, compared to $1.6 billion in 2017.

Looking at which industries or enterprise areas are the most active, AI for cybersecurity is hot among VC investors, just as it is for businesses. In PwC’s 2019 AI Predictions report, 46% of business executives said that the most important application of AI this year would be to manage risk, fraud, and cybersecurity threats.

Venture capital’s interest in AI for digital health, the IoT, FinTech, the automotive industry, agriculture, construction, and more also match with what the wider business world is doing with AI — and may offer guidelines for what your company should be doing.

To keep up with AI, look outside your walls

AI is moving so quickly, you may not be able to do it all internally. Even AI leaders use deals: Apple’s Siri, Amazon’s Alexa, and Google’s Assistant all rely in part on acquisitions. Google and Amazon have even established venture capital arms — the “Google Assistant Investment Program” and the “Alexa Fund” — to invest in startups with technologies that can support conversational AI. Both funds, for example, recently invested in an AI healthcare startup for hands-free communications between caregivers and patients.

Such deals show where the leaders are setting priorities. If Amazon and Google consider conversational AI so important, they’ve set up special VC arms for it, and that’s a good sign that you too should look at what it can do. Yet many may be missing out on this opportunity: In our 2019 AI survey, just 18% of executives said natural language processing, one of the key techs that make conversational AI possible, was a key area they would focus on in 2019.

Patent filings are another indication of where the AI leaders are heading. A CBI analysis of Google’s patents, for example, show heavy investments in deep learning and natural language processing to help process more information more quickly and accurately. (What business doesn’t want to do that, whether for retail analytics, tax, or any function that uses data?)

But perhaps the best way to spot where your business can find new value from AI is to watch where venture capital is placing its bets. Take a look at the startups winning investments: the technologies they’re developing, the industries and functions where they’re applying them, and who they’re partnering with. Then set a strategy to put their capabilities to work for you.

You don’t need to acquire a company to acquire capabilities

If you’ve got a key strategic need that an AI startup can meet and deep experience in integrating, acquiring an AI startup may make good business sense.

But another option is to look just for AI capabilities. Many AI startups are working on products or services that could solve your business problems. (Want to improve predictive maintenance? Consider hiring an “AI for the IoT” startup, as the US Army is doing for armored fighting vehicles.) Many of these startups could also benefit from partnering with an established company to gain market traction.

And then there’s talent.  For AI to produce results quickly, you need people who’ve gone through the learning curve on someone else’s dime. Startups can be a rich source of talent, especially if you find them early, before they either get snapped up.

Even if you don’t make an acquisition, find a vendor, establish a partnership, or hire fresh talent, seeing what startups are up to is still key for scouting the latest technology trends. You may, for example, find AI startups emerging from a university that wasn’t on your radar for recruiting or partnerships.

Put AI to work

There’s a reason why money is pouring into AI: It’s creating value. Our 2019 AI Predictions report showed, for example, that of companies that already have AI initiatives, 20% are planning to take those initiatives enterprise-wide in 2019, making all their operations AI-enhanced.

To put AI to work solving your business problems, your company should continually watch for what innovative new companies are doing with AI. You’ll also have to find top AI talent. For both priorities, a look at where VCs are placing their bets is a great place to start.