Common sense tells us that when something grows too fast, it’s usually not a good thing. And that’s exactly what the bubbly space of artificial intelligence looks like right now.
In the past five years, the number of privately-owned AI companies that received venture capital funding have grown more than 500%, and the average funding size has almost tripled. And despite industry insiders’ repeated warning of a forming “AI bubble,” the frontrunners in this cash-pumping game have shown no signs of slowing down.
Last month, Japanese investment powerhouse SoftBank Group, which turned Silicon Valley upside down in 2017 and 2018 with its $100 billion Vision Fund, announced that it was ready to launch a second Vision Fund and already had $108 billion secured from upstream investors.
Unlike the first Vision Fund, which touched private companies in a wide range of industries, the Vision Fund 2 will focus exclusively on AI companies.
At $108 billion, that commitment would be equivalent to the total VC dollars raised by U.S. companies in all industries last year and five times the amount of venture capital going into AI companies globally, per calculations by The Wall Street Journal and the MoneyTree report from PwC and CB Insights.
While it’s one thing to have the money ready to fuel an emerging technology like AI, it quite another to know whether the pace of technological advancement will actually catch up with investors’ untamed enthusiasm.
Riding a wave of media craze over AI, businesses increasingly label themselves as AI companies to woo customers as well as investors.
“It’s very clear that [AI] has become a marketing thing,” Philipp Gerbert, a Germany-based AI expert with Boston Consulting Group, said in a recent interview with the Journal.
Earlier this year, a study of roughly 3,000 companies in Europe found that only half of the self-described AI companies actually had valuable AI technology. Similar findings were seen in China, too, where A.I. was thought to be a core component in the Chinese government’s “Made in China 2025” mission. Former Google executive-turned-venture capitalist Kai-Fu Lee told local media that he’d seen extreme cases such as an underwear manufacturer branding itself as an AI company, which he said was “abnormal.”
That said, SoftBank founder and CEO Masayoshi Son is too much of an optimist to be distracted by those worries.
“Within 30 years, definitely, things will be flying,” Son told CNBC in March. “Things will be running much faster without accident. We will be living much longer, much healthier. The diseases that we could not solve in the past will be cured.”
Also speaking to the Journal, San Francisco-based entrepreneur Chris Nicholson, CEO of deep learning startup Skymind, said he’s excited about the technological progress SoftBank’s new mega fund could bring about, but he’s doubtful on how fairly AI companies would be valued from a business standpoint.
“Now we have $100 billion that are set to chase and support AI, and they obviously won’t be investing in Google and Microsoft. So this will create new centers of AI progress. And that’s healthy,” he said. “I have no doubt this new fund will accelerate the development of AI. The question is, who is going to value these startups higher than SoftBank? What’s the exit plan?”