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Artificial Intelligence Startups: The Key to Real Returns in the Modern Economy?

AIArtificial IntelligenceMachine LearningNeural NetworksAI startups
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Catherine Klinchuch   November 09, 2017

It appears that Artificial Intelligence may finally be ready for takeoff! In our view, AI will be pervasive in the modern economy and we believe investors will benefit from gaining exposure to this theme. Historically, technological revolutions have been triggered by a vital economic input becoming cheaper. Ultimately, AI does just that. AI reduces the cost of prediction, a key input for business decisions across many economic sectors. Given AI’s broad applicability, the potential impact of the technology is staggering, with two prominent consultancy firms pegging the eventual economic contribution at ~$14-16T. For a detailed analysis of the industry and the major players in this sector, please download the report here: EquityZen Artificial Intelligence Sector Report

Ready for take-off

AI as a whole is primed to break through its stall speed. The short, roughly 60 year history of AI is littered with booms and busts. However, we believe the ingredients are finally in place for sustained progress in the field:
  • Machine learning: Historical AI “busts” were often caused by techniques that failed to achieve promised breakthroughs. Today’s AI research is generally focused on machine learning and deep learning. These techniques have been more promising, powering key innovations including self-driving cars, speech recognition, and effective web search.
  • Abundant data: Data is the fuel of machine and deep learning. The internet and increasing number of connected devices have created ever deepening pools of data – IBM estimates that 2.5 quintillion bytes of data are created daily.
  • Dramatically cheaper compute and storage: Given its large data requirements, AI requires significant computing power. Recent studies suggest that over the past quarter century, computing power available per dollar has increased by a factor of ten every four years
  • Strong capital availability: Venture capitalists have poured over $12B into the sector since 2011. Corporates (notably Google, Amazon, Facebook, Baidu and Microsoft) have also been active in the space, completing over 250 acquisitions of AI startups over the past five years. 

AI Startup Landscape

According to Crunchbase, over 1,000 artificial intelligence startups are operating currently. Unicorns (companies with valuations >$1B) include: Zoox, UBTECH, BenevolentAI, iCarbonX and insidesales.com. Most startups focus on narrow AI applied to specific industries and/or verticals (autos, fintech, healthcare). A smaller number specialize in the industry-agnostic Core AI and application specific AI segments. 

Over $12B of venture capital has poured into the sector since 2011. Data Collective, New Enterprise Associates and Khosla Ventures are among the top VC backers. In addition, several corporates have raised AI dedicated funds, including Google (Gradient Ventures), Toyota and Salesforce.

The potential impact of AI is staggering. A recent study by PWC estimates AI will contribute $15.7 trillion to global GDP by 2030. Accenture, another consultancy, offers a slightly lower $14T forecast (by 2035). At these levels, we estimate AI would have a modestly larger impact on GDP growth vs ICT (information and communication technology), which started the so-called ”Information Revolution." Studies have pegged ICT’s contribution to economic growth at ~0.2-0.6% annually. 

Our AI Report

In our detailed report, we'll dive deeper into the startups specializing in and utilizing AI. A select sampling of these companies includes Ayasdi, Digital Reasoning, and Voyager Labs. For a detailed analysis of the industry and the major players in this sector, please download the report here: EquityZen Artificial Intelligence Sector Report


Cybersecurity Startups: Hacking into a Growing Market Opportunity

AICybersecurityHackingBlack HatForescout TechnologiesZscaler
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Catherine Klinchuch   September 14, 2017

As the world grows increasingly digitized, from cryptocurrencies to the interconnectivity of social media platforms, it has never been more important to protect your data. In the wake of the catastrophic Equifax data breach, cybersecurity has become of the utmost concern for every day citizens. The cybersecurity market has grown to $120B, underpinned by an increase in the frequency and severity of cybercrime over recent years. As cyber threats have increased, though, legacy technology has become increasingly less effective at mitigating them. For a detailed analysis of the industry and the major players in this sector, please download the report here: EquityZen Cybersecurity Sector Report


A Shifting Landscape

Cybersecurity is poised to become a key challenge for the modern economy. A staggering 4B records were exposed to data breaches last year, including notable attacks on Yahoo (twice), Dyn and the Democratic National Committee. This number is expected to increase – Cybersecurity Ventures estimates cybercrime could cost the global economy $6T annually by 2021, up from $3T in 2015.

As the business world is coming to understand, the old security models are broken and new tools are needed. As cyber risks grow, legacy technologies have become increasingly less effective in mitigating them. Several key changes are driving this trend:

  1. The volume of data transmitted is growing rapidly, with global IP traffic projected to reach 3.3 zettabytes (ZB) by 2021 (vs. 1.2 ZB in 2016)
  2. Data is increasingly stored outside of data centers, which traditional security systems were designed to protect
  3. Hackers are becoming more sophisticated at undermining legacy security tools.
A wave of startups are driving innovation within the sector to meet new security challenges. Key innovations introduced by these companies to address emerging cybersecurity challenges include cloud/IoT security, quantum encryption, and predictive analysis. These companies have already managed to catch the eye of many VC investors who have contributed large investments to help bring new cybersecurity tech to fruition.

Venture Investment in the Cybersecurity Space

Cybersecurity has attracted robust venture funding. 2016 marked a robust year for private security financing, with $3.5B invested in 400 start-ups. This momentum continued into 2017, with 1Q17 marking a five-year record for VC-based cybersecurity deals. Prominent venture firms invested in the space include Andreessen Horowitz, Bessemer Venture Partners, Accel Partners, Intel Capital, and Lightspeed Venture Partners. 
Source: CB Insights
Cybersecurity-dedicated funds are also bursting on to the scene. Earlier in 2017, Trident Capital launched a $300M cybersecurity fund. The fund—which was oversubscribed at its debut—is one of the largest dedicated exclusively to cybersecurity. Allegis Capital and TenEleven Ventures also focus on the sector. Over 1,400 cybersecurity start-ups are currently operating. Unicorns (companies valued at $1B or more) include Tanium ($3.8B), Illumio ($1B), CrowdStrike ($1B), Cylance ($1B) and Zscaler ($1B).  
Cybersecurity is a large and growing market. Thrust into the public conscience now more than ever, cybersecurity startups are racing to solve one of the world's most pressing problems. To learn more about the industry, companies in the sector, and gain further analysis, remember to check out our full report here: EquityZen Cybersecurity Sector Report