From seed to Series C to success
AI firm captures investors’ interest
Every few years a technology that takes over the business world captures the undivided attention of investment community. It happened with cloud, with mobile and with big data. Each of those technologies were responsible for creating an entire ecosystem of startups and investors.
Now it’s AI’s that is capturing investors’ interest.
Integrate.AI is a case in point. CEO and founder Steve Irvine left a lucrative role at Facebook to start his own AI platform development company in January in Toronto. It has already received US$5 million in seed round funding from Georgian Capital — a firm that almost exclusively invests in growthstage enterprise companies earning $500,000 or more in monthly recurring revenues.
“It’s the first seed investment Georgian has made. But it’s a fund that really understands the AI space and what business models will be successful,” Irvine says.
“For a firm like Georgian to come to the seed stage for a company that doesn’t yet have a product — that indicates a significant trend,” says Michelle McBane, investment director at Investment Accelerator Fund at MaRS in Toronto.
So what is it about AI that is bringing high-profile investors to the table so early in the game? As a rule, venture funding typically goes for high-growth, highly scalable businesses, she says. “That means the business has to be very disruptive. ... AI is one of those underlying technologies that can touch many, many things.”
Valuations for AI projects are increasing, McBane says.
While AI startup investment may have some exceptions, funding rounds typically follow a specific pattern, starting with the angel/friends and family financing stage — usually in the $100,000 to $500,000 range. Seed-stage investors are the next step as the company “stretches out.” At that point, a company will have reference-able customers, some sort of market validation, and a nucleus of a team that includes a business and/or product development and a technology person in place. Funding at this stage is usually in the $500,000 to $3 million range.
The next inflexion point is Series A, B and C financing (the differentiation between the three being the maturity of the business and the amount of money involved). “At that point the business is a machine and its model is repeatable and scalable, and has the metrics to understand how it will grow substantially,” she says.
Irvine says despite its success with seed funding, the groundwork is the same. “It might look easy with all the hype around AI. But there’s no way to skip the steps of having a great business model, people and a market to sell to.”