Venture-Backed Firms Spent Nearly $8 billion on AI Acquisition

A developing range of venture capital-sponsored companies are shopping for artificial-intelligence startups, holding off public marketplace debuts as they bulk up on merchandise and services, startup founders and traders say.

Venture-backed startups spent about $8 billion last year to acquire an estimated 72 AI startups against 49 in 2020, according to 451 research, a division of analytics provider S&P Global Market Intelligence. 

Romitha Mally, business advisory firm Mally Collective and a former vice chairman of investment banking at UBS Group AG, said the acquisition by a large company about a year ago when the IPO market was strong seemed less unattractive. 

According to CB Insights, between January and March, the number of startup exits through IPOs and special-purpose acquisition company mergers fell 45% from the previous quarter, while overall startup funding dropped 19%. The number of acquisitions remained roughly steady at an estimated 2,983 deals, over the same period, the research firm said. 

Investors say start-ups developing AI capabilities tend to focus on specific industries and skills, allowing buyers to close product and service gaps and reach more customers.