Slides cover rationales and trends in acquisitions of artificial intelligence startups by non-software/internet companies

1. June 2018
Peter Zhegin
Trends and rationales.
Why someone in a non-software/internet
business would acquire an artificial intelligence
(AI) startup?

2. Speaker introduction – Peter Zhegin
2
Venture Partner at Sistema_VC, an international venture capital fund with exposure to cognitive
technologies.
Sistema_VC’s investments include:
• DataSine analyses transactional and biographical data to determine a customer's personality, needs,
behaviours, and life situation;
• GOSU.AI is an esports AI-driven training platform;
• VisionLabs is a computer vision company focused on biometric face recognition;
• Connecterra develops an intelligent dairy farmer’s assistant;
• Others…
Investor in AI Seed Fund.
Previously: Flint Capital, Ozon.ru.
Education: MSc Management, Leeds University Business School. MA History, Moscow City Pedagogical
University.

3. Nils J. Nilsson, The Quest for Artifiial Intelligence: A History of Ideas and Achievements (Cambridge, UK: Cambridge University Press, 2010).
Herbert A. Simon, “Arti cial Intelligence: An Empirical Science,” Arti cial Intelligence 77, no. 2 (1995):95–127.
Deloitte University Pres, http://www.theatlantic.com/sponsored/deloitte-shifts/demystifying-artificial-intelligence/257/, ARTIFICIAL INTELLIGENCE AND LIFE IN 2030
There’s no universally accepted definition of AI
Instead, AI may be considered as a set of
technologies
Definition 1:
‘Artificial intelligence is that activity devoted to making
machines intelligent, and intelligence is that quality that
enables an entity to function appropriately and with
foresight in its environment‘.
Definition 2:
AI is ‘…a branch of computer science that studies the
properties of intelligence by synthesizing intelligence’.
3
2
Selected definitions of AI

4. Conversation about AI transactions goes around Apple, Google, etc.
https://news.crunchbase.com/news/ai-startups-take-money-run-big-tech-comes-acquiring/
https://www.cbinsights.com/research/top-acquirers-ai-startups-ma-timeline/
https://venturebeat.com/2018/03/10/google-and-apple-are-in-a-tight-race-to-acquire-the-most-promising-ai-startups/
4
Selected press coverage of mergers and acquisitions (M&As) activity in AI

5. 8 31 69 420
0%
20%
40%
60%
80%
100%
1) earlier 2000 2) 2000-2005 3) 2006-2010 4) 2011-Now
Tech giants/Serial AI acquirers Tech acquirers Emerging acquirers/Non-Software/Internet Total
However, acquiring an AI company is becoming a mainstream
5
AI M&A deals by time period and the acquirer type, (n=528)
Sistema_VC
<< Non-Software/internet acquirers
<< Other tech companies
<< Tech giants (Google, FB, Apple, etc.)
9%
3%

6. 50%+ of AI M&As in non-software/internet took place in 2016-2018
6
AI M&A deals by non-software/internet buyers (n=42)
Sistema_VC
1
2
1
2
1
5
13
16
1
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018

7. 7
10 largest AI M&As by non-software/internet acquirers
Sistema_VC
Non-software/internet acquirers spent some big $ on AI

8. 25
8
7
2
Technology/Product
Customer centric
Transformative
Process optimization
8
Non-software/internet AI acquisitions by type (n=42)
Sistema_VC
AI fills gaps in a product portfolio, helps to build a holistic product
offering. Acquisitions of complementary products or/and
technology as elements of existing products;
AI to help a customer to get more value out of an existing
product. Acquisitions of tech within various elements of a value
chain, e.g. its service element;
AI to transform. Acquisitions of tech that radically transforms an
existing product/industry;
AI to improve internal processes. Acquisitions of tech that helps
to cut costs, increase efficiency of internal operations, maybe
w/o passing savings to clients.
Technology/product acquisitions are popular ones, but other types do exist

9. 9
AI acquisitions by industry and type (n=42)
Sistema_VC
5
10
10
4
3
9
1
42
0% 20% 40% 60% 80% 100%
Robotics/vehicles
Industrial
equipment/machinery/services
Healthcare
Electronic devices
Consumer
Automotive
Apparel
Cross-industry average
Grand Total
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Robotics/vehicles
Industrial equipment/machinery/services
Healthcare
Electronic devices
Consumer
Automotive
Apparel
Cross-industry average
Customer centric Process optimization Technology/Product Transformative
# of deals
The role of AI varies depending on a sector where the buyer operates

10. 10
Selected examples
Tech/product and process optimisation acquisitions
VIDI Systems and Conex – Tech/product
acquisition
“Upon closing, ViDi Systems became part of
Cognex’s Vision Products business unit, where
their deep learning software will continue to be
developed and integrated into the Cognex product
portfolio”.
MOTIVE Drilling Technologies and Helmerich &
Payne – Process optimization acquisition
“… directional drilling process has been an industry
focus for some time given ...greater accuracy,
resulting in a better quality wellbore. We believe
MOTIVE’s directional drilling technology to be
leading edge and high-potential for the industry”.
https://www.cognex.com/en-hu/company/press-releases/2017/cognex-acquires-maker-of-deep-learning-software-for-industrial-machine-vision
https://globenewswire.com/news-release/2017/05/22/994848/0/en/Helmerich-Payne-Inc-Announces-Acquisition-of-MOTIVE-Drilling-Technologies-Inc.

11. 11
Selected examples
Customer centric acquisitions
Blue Belt Technologies and Smith & Nephew –
Customer centric acquisition
“… Blue Belt is its “most successful” implant sales
partner… ”.
Blue River Technology and John Deere –
Customer centric acquisition
“This precise targeting ultimately reduce chemical
usage by more than 90%, resulting in cost savings
to the farmer and fewer harmful chemicals in our
soil”.
https://medium.com/@dcvc/john-deere-acquires-blue-river-technology-for-305-million-bringing-full-stack-ai-to-agriculture-7ca8c25a5fe1
www.massdevice.com/smith-nephew-closes-275m-blue-belt-buy
http://www.loreal-finance.com/eng/news-release/loreal-acquires-modiface-further-expanding-its-worldwide-expertise-in-beauty-tech-1247.htm
Modiface and L’Oreal – Customer centric
acquisition
“…[the startup] will support the reinvention of the
beauty experience around innovative services to
help our customers discover, try and chose
products …”.

12. 12
Argo AI and Ford
Transformative acquisition
“The next decade will be defined by the
automation of the automobile, and
autonomous vehicles will have as
significant an impact on society as
Ford’s moving assembly line did 100
years ago”.
https://media.ford.com/content/fordmedia/fna/us/en/news/2017/02/10/ford-invests-in-argo-ai-new-artificial-intelligence-company.html

13. Conclusion
13
1. Acquiring an AI startup is becoming more popular among non-software/internet companies;
2. Some of them pay billions for startups;
3. AI startups appear to help acquirers to pursue several goals, namely:
• Fill product/tech gaps;
• Increase value of existing products;
• Optimize processes;
• Transform businesses.
4. Choose an acquisition target carefully and having clear goals in mind.

14. Thank you!
Peter Zheign
pz@sistema.vc