Why buyers are snapping up home-grown artificial intelligence businesses

There’s no avoiding the increasing influence of artificial intelligence (AI) on our daily lives. If you’re asking Alexa or Siri to help you with directions home, searching for a book on Amazon, putting a tough question to Google, going through Passport Control or even just sending a text, artificial intelligence is instrumental in making sure that a human’s input can be understood - and the data contained manipulated - by a computer.

Innovative firms in this space are often snapped up by the tech industry’s biggest players - Google, Amazon, Microsoft and the like - as they aim to fast-track the development of new technologies to satisfy customers and investors.

The next big AI idea might be developing closer to home than you think, however. Four of the world’s biggest deals to acquire AI startups in the last four years have involved UK companies, starting with Google’s £400 million purchase of Deep Mind in 2014. Deep Mind is a London-based firm that creates neural networks and learning algorithms.

Since then, Apple has bought VocalIQ, a Cambridge-based company that specialises in natural language processing, used to improve search engine queries, Microsoft has bought SwiftKey, which takes predictive texting to extraordinary levels, and Twitter acquired Magic Pony, a machine learning firm from the Entrepreneur First stable of tech companies.

The pace of these acquisitions, as well as foreign appetite for UK tech firms, is showing no signs of slowing up this year.

In March this year, US insurer Travelers picked up online broker Simply Business in a £420 million deal. In July, US financial giant Nasdaq announced it had acquired Sybenetix, a London-based software company that uses algorithms to track rogue stock traders.

Indeed, M&A deals which involved British companies accounted for one in 10 e-commerce deals undertaken around the world in the first half of 2017, with companies in the UK’s fintech and IT industries receiving more funds from US investors than has been received by any other European country.

Advisory company Hampleton Partners charted the rise of the UK’s tech firms as an investment destination. The firm’s principal partner, Miro Parizek, said that companies specialising in AI, virtual reality and cybersecurity were three of the globe’s most promising sectors.

He added: “M&A and funding is accelerating in select sectors, as more ‘non-technology’ or traditional companies and private equity firms move to acquire and invest in technology and innovation.”

Hampleton’s data also showed that acquisitions of AI-related firms and startups has swelled by 179 per cent in just the past year, with European and North American investors sharing a strong appetite. Additionally, of all the M&A deals recorded in the same research, British companies were involved in 35 of all deals carried out in Europe. Germany, in second place, took only 13 per cent.

In the Hampleton report’s author’s own words, the UK is “expected to dominate European deal share” in the tech sector for the foreseeable future, even given the uncertainty of Brexit.

With this information in mind, could the next Deep Mind, VocallQ or Sybenetix already be quietly growing, to the point where it will soon require investment or acquisition to achieve its ambitions?

One such firm might be Darktrace, an online security startup based in Cambridge, which has become a hub for so many of the UK’s cutting-edge tech ventures given its proximity to one of the world’s leading universities and the brainy talent it provides.

Darktrace seeks to answer the problems around new cyber threats and the rate at which they evolve and adapt to avoid anti-virus software, security experts and even the world’s law enforcement agencies. High-profile hacks such as the recent outage caused to NHS servers prove that this is an area with a need for solutions.

The Cambridge firm uses AI techniques to determine what is “normal” network activity on a given company’s network, and thereby work out what might be an anomaly. According to the firm’s website, “this allows it to detect cyber attacks of a nature that may not have been observed before, the unknown unknowns”.

Spooky stuff, but not for investors: Darktrace has already raised an impressive £58 million of funding in a single investment round in July, putting its total valuation at around £640 million.

A company started by a trio of Oxford graduates, meanwhile, is using AI to do similar work to Darktrace but with identity and background checks. Onfido, now based in London, is developing software to allow employers a way to effortlessly check publicly available databases, such as the DVLA’s driving record or criminal records, to perform quick ID checks.

The company is currently hiring machine learning and computer engineers to build its platform but raised a cool £19 million of funding this April, lead by French tech investor Idinvest Partners.

Then there’s Digital Genius, another London-based startup that is trying to revolutionise customer service inquiries with its deep learning technology. The firm’s neural network gives company representatives three potential responses to customer queries, each with an assessment of how relevant the computer generated response might be.

Customer service representatives then only have to choose the right response, rather than work out the answer to the question themselves. The startup claims it can reduce the average handling time for cases by 20 per cent using this technology, particularly important given the increasing volume of queries organisations receive from digital channels like social media.

With customers on board including Dutch airline KLM, Unilver and L’Oreal - and £8 million of funding already in the bank - the firm looks set for rapid growth.

Other potential UK tech giants of the future include Echobox, which uses AI to optimise content for social media, marketing language optimiser Phrasee and Grip, which promises to make in-person networking more efficient by pairing you up with pre-matched industry contacts.

Then there’s South London’s Tractable, a deep learning consultancy focused on automating tasks previously considered “too expert” for AI to perform.

Though the next big thing could be among these companies - and looks likely to be found within the UK - a word of warning: sometimes, even the most earnest tech predictions can fall wide of the mark by a long way.

Remember how tech guru Bill Gates once mused about how nobody “could ever need more than 640K of RAM”, for example? Or how experts predicted that they might be able to reduce the size of the ENIAC computer, one of the first general-purpose computers ever made, from 6 tonnes to 1.5 tonnes by the end of the 20th century.

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