AI VC Funding Dropped 33% to US$15 Billion in 2020, But A Strong Rebound Imminent in 2021

2020 was a tough year for the Artificial Intelligence (AI) industry. The AI venture capital (VC) scene witnessed total funding raised in 2020 drop by 33.9% as compared to the year prior, according to global tech market advisory firm ABI Research. A total of US$15 billion raised in 2020, which is significantly lower than US$22.7 billion in 2019. This is the first decline in global AI VC funding since 2012, an occasion driven by several headwinds.

Among the main factors, COVID-19 is the most impactful one. VC rounds were reduced due to lockdown measures. VC firms also held out from deal-making due to uncertainty in the macro-economic environment. In addition, some AI startups with mature business cases strategically stayed out of funding rounds in 2020, only to return in 2021.

At the same time, the trade dispute between the United States and China cooled investor enthusiasm. U.S. investors chose to stay away from investing in Chinese AI startups. At the same time, many Chinese AI startups faced challenges to expand their presence in the United States. “Not surprisingly, the United States dominated the top 20 list with 13 AI startups, such as Affirm, Aurora, DataRobot, Nuro, Pony.ai and TuSimple. All these startups introduced cutting-edge AI functions to a diverse range of industries, ranging from finance to automotive, logistics, healthcare, AI chipsets, and business administration,” explains Lian Jye Su, a Principal Analyst at ABI Research.

Nonetheless, both Coronavirus and geopolitics presented new complexity to the global economy, thereby creating new opportunities to the adoption of AI. As most employees were placed under COVID-19 lockdown, AI startups offered automation and augmentation tools for remote work and collaboration, the implementation of safe distancing and health monitoring protocols, and cybersecurity threat prevention. Facing supply chain disruption, major economies around the world advocated for domestic companies to diversify their supply chain strategy, while reinvesting in domestic manufacturing capabilities. These drove a new focus on industrial AI startups that offer digitalization and analytics tools, such as Augury, COSMOPlat, FogHorn and SmartMore.

Underpinning all these AI developments are the increasingly diverse AI chipset, software, and turnkey service industry. Edge Impulse offers Subscription-as-a-Service (SaaS) and turnkey services for Tiny Machine Learning (TinyML) development. More than 10 AI chipset vendors received VC funding in 2020, each focusing on a niche. For example, Israel-based Hailo has a strong focus in industrial applications, Syntiant and AIStorm in ultra-low powered machine learning, and Horizon Robotics and ECARX in autonomous vehicles.

“2020 will be seen as a slight hiccup for an otherwise steady increase in AI investments. The demand for AI is constantly expanding in new frontiers. As such, the AI VC funding is fully expected to enjoy a strong rebound in 2021. As of June 2021, the total investment amount for AI startups is around US$14.5 billion, already closing in on 2020’s amount, and is very likely to exceed the 2019 figure,” Su concludes.

These findings are from ABI Research’s AI Investment Monitor 2020 application analysis report. This report is part of the company’s Artificial Intelligence and Machine Learning research service, which includes research, data, and ABI Insights. Based on extensive primary interviews, Application Analysis reports present in-depth analysis on key market trends and factors for a specific technology.