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July 30, 2019

Health Care, Sales Software Draw Big AI Investments

This article was originally published on WSJ.com on July 30, 2019.

Venture-capital investors poured a record $7.41 billion into artificial-intelligence startups in the second quarter, particularly focusing on health care and enterprise-sales software.

AI financing was up 7.7% from the $6.88 billion invested in the second quarter of 2018, according to a report released last week by research firm CB Insights. The number of deals fell about 5% to 488 from 513.

While much of the deal activity involved health care and sales tools, investor interest was widespread. AI applications for transportation, retail and consumer packaged goods, and media and entertainment each attracted more than 20 funding deals in the second quarter.

“I think there continues to be interest from investors, not just VC investors but also corporate investors,” said Deepashri Varadharajan, lead AI analyst at CB Insights.

The report found that the share of global venture-capital funding that landed at U.S.-based AI companies stood at 40% at midyear, after falling steadily since reaching a peak of 74% in 2013. The U.S. was still the No. 1 recipient of AI investment, followed by China at 12.5% and the U.K. at 7.1%.

In terms of deal activity, health care was the most active sector, accounting for 75 of the second quarter’s 488 deals, representing $864.1 million in funding. CB Insights has recorded at least 50 AI health-care deals per quarter since the start of 2018.

Clinc Inc., a four-year-old company that sells a conversational AI platform to clients in industries including health care, raised $52.3 million in Series B financing in May. Clinc’s platform, which is based on natural language processing, can populate medical records by listening to patients and health-care providers. The company is testing the platform in assessing strokes by listening to interactions between patients and emergency medical technicians in ambulances.

The opportunity for health-care AI is massive, said Jason Mars, Clinc’s chief executive and co-founder, “and there are new kinds of capabilities that become possible only if you have good AI.”

Biotech companies drove much of the health-care activity, the report found. Chicago-based Tempus Labs Inc., for instance, raised $200 million in Series F financing in May. Tempus provides genomic-sequencing services and analyzes molecular and therapeutic data to inform cancer treatments and research.

In AI applications primarily for business use, sales and customer-relationship-management software accounted for the most deals in the second quarter. Investors pumped $392 million into the enterprise AI sector in the second quarter, spread across 30 deals.

Seven-year-old Collective[i] uses data, AI and predictive technologies to help sales staff close deals. Stephen Messer, the company’s co-founder, said investors are interested in companies like his because businesses want to increase the effectiveness of their sales teams.

“Every company today needs to grow revenue desperately,” Mr. Messer said, “and sales is actually one of the areas that, technologically, hasn’t changed much in 30 years.”

CB Insights defines an AI company as one that sells AI software-as-a-service; companies that use AI to build core products, such as an AI-enabled medical device; companies that develop hardware for AI workloads; or AI consultancies that build custom AI solutions for clients.

Write to Jared Council at jared.council@wsj.com

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