In a funding environment where most things have been on their way down, one area is still headed up, up, up: artificial intelligence.

Investments in AI startups have been on a steep incline over the past five years, increasing from $282 million in 2011 to $2.4 billion in 2015, according to CB Insights. That growth has continued into the current year, and you can expect to see more into the future according to the Q2 Venture Pulse report from venture capital research firm CB Insights and auditing firm KPMG.

"AI is an area that has experienced rapid growth over the last five years and is poised for further growth over the next year," according to the report, released today. "The relative resilience of this industry can be attributed to the fact that AI technologies underpin countless innovations, from driverless cars to robo advisory platforms."

The second quarter saw 73 AI deals globally, amounting to $624 million in funding, according to the report. That's up from $576 million in funding in the first quarter, and $440 million in the second quarter of 2015. The peak over the last year, however, was the third quarter of 2015, which saw $858 million in funding spread out over 81 deals.

Most deals in the last quarter were in the U.S., which accounted for 47 deals totaling $524.5 million in funding.

The uptick goes against a general downturn in the number of deals over the past few quarters. Deals activity slowed in Q4 2015 and Q1 2016, and in the most recent quarter dropped another six percent to 1,886 financings globally.  

However, the amount of venture capital invested globally in startups actually increased 3 percent to  $27.4 billion during Q2, which CB Insights and KPMG attribute to fundraising rounds of more than $1 billion each to startups valued at more than $10 billion, including Uber, Snapchat and Chinese Uber competitor Didi Chuxing.

These are the biggest AI funding rounds of the quarter, per the report:

  • Cylance (antivirus software) $100 million
  • Anki ("intelligent" flashcards) $52.5 million
  • MOOGsoft (IT operations analytics software) $31.6 million

The report notes that companies have been automating "basic digital labor" such as transaction processing for some time with AI technology, described in the report as " a 'catch all' phrase that reflects the use of algorithms encoded in software to perform tasks typically considered to require human knowledge, judgment and skill to execute."

Latest efforts with AI include automating tasks and responses that involve "a higher level of uncertainty," according to the report. An example of an AI algorithm requiring this kind of nuance and skill would be an algorithm used in a self-driving car to respond to the actions of real human drivers in other vehicles.

"With more complex AI technologies, companies can reduce headcount and automate many back-office jobs. While the ethical ramifications of these types of activities have yet to be explored in detail, many companies see enormous potential benefits from utilizing or integrating such technologies," the report says.

The blossom of AI deal activity comes as mergers and acquisitions of AI startups are also surging.  Mergers and acquisitions of AI startups increased by a factor of seven between 2011 and 2015, from five to more than 35 deals, according to CB Insights data.

Published on: Jul 19, 2016