Expect an even hotter AI venture capital market in the wake of the Microsoft-Nuance deal

Published April 13, 2021

Microsoft’s huge purchase of health tech AI company Nuance led the technology news cycle this week. The $19.7 billion transaction is Microsoft’s second-largest to date, only beaten by its purchase of LinkedIn some years ago.

For the AI space, the sale is a coup. Nuance was already a public company, but to see Microsoft offer a firm premium over its public-market value demonstrates the value that AI technology can have to wealthy companies. For startups working in the AI space, the Nuance deal is good news; the value of AI revenue was repriced by the acquisition’s announcement — and for the better.

In light of the megadeal, The Exchange dug into the AI venture capital market. What’s happening on the startup side of the coin in the artificial intelligence and machine learning (AI/ML) space?

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To get a handle on the situation, we’ve compiled Q1 2021 and historical venture capital investment data via PitchBook, spoken to an active venture capitalist with a focus on AI-powered startups, and heard from a couple of startups recently featured on CB Insights’ list of leading AI upstarts for their take on the recent news.

The picture that emerges is one of strong investor interest and the expectation of even more in the wake of the Microsoft-Nuance tie-up. For AI startups, it’s a great time to be in the market.

This morning, we’ll start with a look into recent venture capital activity in the AI/ML market and its historical context. Then we’ll talk to Zetta Ventures’ Jocelyn Goldfein and a few companies in the AI space. Let’s go!

A venture capital rush

According to historical data compiled by PitchBook, venture capital investment into U.S.-based, AI-focused startups is enjoying a strong start to the year. Per the group’s provided dataset, from the start of 2021 through April 12, or the first 101 days of the year, 442 deals in the space were worth $11.65 billion.

In 2020, the same query for U.S.-based startups working in the AI and ML space — the line between ML and AI is blurrier than ever — turned up 1,601 rounds worth $27.49 billion.