VCs Put $1.9B in Early Stage Firms, Less in Seed Stage

Despite a small blip of less venture capital funding of AI tech deals in the 4th quarter of 2017, venture capital investment into U.S.-based AI companies hit a new record in the first quarter of 2018 at $1.9 billion, according to the PwC/CB Insights MoneyTree Report, released last week.

The report, co-authored by PricewaterhouseCoopers (PwC) and CB Insights, shows that investment into the AI area of the tech sector remains stronger than ever.

“The quarter saw three AI mega-rounds in companies independently focusing on robotic process automation, autonomous vehicles, and predictive analytics, “ wrote Anand Rao, Principal, Global Artificial Intelligence Leader at PwC.

In addition, despite efforts to restrict foreign investment, China is investing in American tech start-ups because of a venture capital loophole, according to a report in The Wall Street Journal on Monday. The country cannot close deals directly with tech companies or make acquisitions, but is able to invest in start-ups through VC firms.

The Rhodium Group, a New York consulting firm, said the investments start-ups in Silicon Valley obtain funds directly through the Chinese government.

Over the period from January to May 2018, Chinese venture capital investment in the U.S. had already reached nearly $2.4 billion, which was its previous full-year record set in 2015, according to Rhodium’s analysis, said the report in The Wall Street Journal.

According to PitchBook-NVCA Venture Monitor,VC funds in 2018 are investing at a higher rate than ever, with a historic high of more than $28.2 billion raised in the first quarter and several billion-dollar mega-funds announced since the beginning of the year. Several tech landmark deals occurred, such as Amazon’s $1.2 billion acquisition of Ring and Dropbox’s $756 million IPO. The tax cut that benefited corporations resulted in direct increase in the amount of capital available for investment by U.S. VC funds, according to the report.

The PwC/CB report showed that in the AI sector alone, VC firms poured dollars into seed stage investments as recently as last year, but now are putting money into the “Early Stage” of companies, the next step of their growth. The report showed that 36% of investments for Q1 2018 were in Early Stage companies, 26% were in the Seed Stage, 22% were in the Expansion Stage, 9% were in Later Stage and 7% were in Other.

Early Stage AI investment increased by 10% in Q1 2018, an eight-quarter high.

The largest investment, $153 million, went to UiPath, a software company in New York. Other investments included two other software firms: $112 million for in Fremont, CA; and $100 million to C3IoT in Redwood City, CA. Nuro, an autonomous car company based in San Francisco, racked up a $92 million investment, followed by Tempus Labs in Chicago, a biotech company, at $80 million and Stem, an energy storage company in Millbrae, CA at $80 million.

For more information on tech investment trends worldwide, download CB Insights’ Venture Capital Funding Report Q2 2018.