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2016-12-07-1

Term Sheet — Friday, February 17

Feb 17, 2017

IT’s TIME TO TAKE AI SERIOUSLY

The following is from the latest print edition of Fortune, where I write a regular column about technology and startups called “💥Boom with a View💥.

There’s an easy way to tell when the hype around a technology trend has peaked. Ask yourself the following: Are the smartest venture capitalists complaining about valuations? Are big tech companies snapping up startups so young they can barely be considered real businesses? Are Fortune 500 executives talking about their [insert trend here] strategy? If the answer to any of these questions is yes, congratulations! You’ve identified a fad. A small, lucky handful of early movers will ride it to untold riches. By the time the rest of us find out about the phenomenon, it’s too late.

Consider, then, today’s hot trend: Artificial intelligence. Venture capitalists across the country are parroting the phrase “AI is the new mobile.” Andrew Ng, chief scientist of Baidu, the Chinese Internet services company, declared that AI is “the new electricity.”

The more intensely tech thought leaders proclaim that a trend is here to stay, the more rapidly it tends to vanish. (Daily deals were “the future of commerce.” SoLoMo—social, local, mobile—was “the future of marketing.” On-demand services were “the future of work.” Chatbots were “the future of customer service.”)

And yet the smart money continues its embrace of AI startups. Last year VCs invested $5 billion in 658 companies, a 61% increase over the year prior, according to CB Insights. Acquirers are getting aggressive too. Last year corporations, mostly big tech companies, bought at least 40 AI startups, a trend that’s expected to continue in 2017. Identifying AI acquisitions is a top priority for Don Harrison, head of corporate development at Google. “We’re definitely AI-first,” he says, noting that price is not a sticking point. “We pay attention to [valuation] but don’t necessarily worry about it.”

The fact that AI often lacks a clear business case doesn’t matter. “These are not businesses,” says John Somorjai, executive vice president of corporate development at Salesforce, which has acquired a handful of AI companies. “These [deals] are about technology and talent.”

Years ago we marveled at the valuations of money-losing mobile startups and snickered at the lack of a business model at companies like Android, which Google bought in 2005 for around $50 million. Things have changed: Today we expect every company to have a mobile strategy because the very premise is a given. Meanwhile Android is the most popular mobile operating system in the world.

Will artificial intelligence be a given in the years to come? Is AI a short-lived fad on par with SoLoMo—or a revolution like mobile? If companies and investors believe the latter, they should be pouring money into the technology. In five years artificial intelligence could exist as a layer of capability atop every business process, from customer service and marketing to product development and sales, across every industry. And then it will be clear that the lucky early movers weren’t just riding a fad to riches—they were shaping the future.

***

The beginning: Krisha, “Kittu” Kolluri has a new fund. Kolluri left NEA last year after a decade of investing with the firm. (His exited deals included Aerohive Networks, Box, Vuclip, Climate Corporation, PortAuthority, and Braintree.) When he left, he wrote he was ready to begin a “new chapter” that would “no doubt include some familiar themes, but the story will be mine to write.”

Now he’s raising $90 million for a new fund, according to an SEC filing. The firm is called Neotribe Ventures. Based in Palo Alto, it has already backed six enterprise technology companies, according to its website: Rupert Labs, Fortanix, Kemvi, Next, Quiet Signal, and Wyebot. Jerry Yang, Venky Harinarayan, and Anand Rajaraman are listed as special partners to the fund with Srihar Tayur as an advisor.

The end: Beepi, a startup for selling used cars online, is dead, the Wall Street Journal reports. Cause of death: Growing too fast. At its peak, Beepi had 300 employees and a revenue run rate of $200 million. But the company burned through its $150 million in venture funding. In December, Beepi announced it would lay off staff and merge with a new startup called Fair.com. That deal fell through. Oh, and the $70 million investment the company announced last January from SAIC Motor Corporation, a Chinese automaker? That deal apparently fell apart too. And because three makes a trend, that $300 million funding Beepi announced in May of 2015 never quite came to fruition either. The lesson here, besides “don’t grow too fast,” might be “don’t announce your deals before they’re done.”

Mark your calendar: The Snap IPO prices on Wednesday, March 1 and lists on Thursday, March 2.

Socialize: In hopes that Twitter's new anti-bullying tools are a positive step forward for the platform, why not join me there. We can discuss the Snap IPO, or Verizon-Yahoo, or really anything other than politics. Also, Term Sheet accepts (and investigates!) anonymous tips.

Regret the error: Yesterday’s Term Sheet said Goodwater Capital’s first fund had $150 million in commitments; it has $130 million. Also, we linked to the wrong Paradigm Diagnostics. This is the right one.

Lastly: We are off Monday for the holiday. Have a great weekend!

THE LATEST FROM FORTUNE...

•  A knockout in the biotech fight of the century.

• Starbucks stock loses its buzz.

• This morning Unilever rejected the largest merger proposal of all time from Kraft Heinz — a $143 billion takeover offer. Kraft is owned 3G Capital. Read more at Fortune.

Fortune feature: Unilever’s plan to save the world.

• Tech jobs took a big hit last year.

• 3 execs to watch after Samsung CEO's arrest.

…AND ELSEWHERE

Y Combinator expects the total value of its graduates to be worth $100 billion this year. What is Nelson Peltz up to with P&G? Bee mogul confronts crisis. Theranos: No revenue in 2015 or 2016, $200 million left in the bank. David Plouffe fined for violating Chicago ethics rules as Uber’s lobbyist.

VENTURE DEALS

Upstream, a London-based mobile commerce platform, raised €25 million ($26.6 million) in growth funding from the European Investment Bank.

Soundtrack Your Brand, a Stockholm-based startup co-founded by Spotify that provides background music streaming services to businesses, raised a $22 million in funding. Industrifonden and Balderton Capital led the round, with participation from Telia Company, Northzone, Creandum, HMP, and Jörg Mohaupt.

Opal, a Portland, Ore.-based collaboration platform for marketing teams, raised $15.5 million in Series B funding. Accel led the round.

Plays.tv, a Redwood City, Calif.-based developer of gaming software, raised $15 million in Series A funding. Shasta Ventures led the round, and was joined by the San Francisco 49ers, Jeremy Lin, Accel Partners, Tenaya Capital, DAG Ventures, and Founders Fund.

TetraVue, a Carlsbad, Calif.-based 3D camera technology company, raised $10 million in Series A funding. Robert Bosch Venture Capital and Nautilus Venture Partners led the round, with participation from Samsung Catalyst Fund and Foxconn.

Brightwheel, a San Francisco-based developer of communication software for teachers, raised $10 million in Series A funding. GGV Capital led the round, and was joined by the Chan Zuckerberg Initiative, ICONIQ, Eniac Ventures, Golden Venture Partners, Lowercase Capital, Mark Cuban Companies, RRE Ventures, and angel investors.

YotaScale, a Menlo Park, Calif.-based cloud computing startup, raised $3.6 million in funding, according to TechCrunch. Investors include Engineering Capital, Pelion Ventures, and angel investors. Read more.

Sportsrocket, a New York City-based platform for managing digital sports video distribution, raised an undisclosed amount in funding from Richard Branson.

HEALTH + LIFE SCIENCES DEALS

ts_bullet_primary] Rhythm, a Boston-based biopharmaceutical company developing peptide therapeutics for metabolic disorders, raised $41 million in funding. Investors include Deerfield Management, Ipsen, OrbiMed, MPM Capital, New Enterprise Associates, Pfizer Venture Investments, Third Rock Ventures, and an undisclosed public healthcare investment fund.

Dauntless Pharmaceuticals, a San Diego, Calif.-based biopharmaceutical company developing therapeutics for endocrine cancers, raised $25 million in funding. Canaan Partners led the round, and was joined by Sofinnova.

PRIVATE EQUITY DEALS

W.W. Williams Company, a Columbus, Ohio-based distributor of industrial products backed by One Equity Partners, acquired Auto Safety House, a Phoenix-based vehicle maintenance service and parts provider. Financial terms weren’t disclosed.

Mapletree Investments acquired Oakwood Worldwide, a Los Angeles-based provider of temporary corporate housing. Financial terms weren’t disclosed.

Infogix, a Naperville, Ill.-based data and analytics software provider backed by Thoma Bravo, acquired Data3Sixty, a Westwood, Mass. cloud-based data governance provider. Terms weren’t disclosed.

OTHER DEALS

Verizon (NYSE:VZ) is close to reaching a revised deal to acquire Yahoo’s (Nasdaq:YHOO) core internet business for between $250 million and $350 million less than the original price, following revelations of two cyber attacks, according to Reuters. Read more.

Sunrise Brands has made a bid for The Limited, a New Albany, Ohio-based retailer that filed for bankruptcy in January, according to Reuters. The company has already received a $26.3 million takeover offer from Sycamore Partners. Read more.

Huron (Nasdaq: HURN) acquired Innosight, a Lexington, Mass.-based provider of growth consulting services, for $100 million, with an additional $35 million in performance-related incentives.

EXITS

Tinder, the dating app owned by IAC (Nasdaq:IAC), acquired Wheel, a free social media app for creating “video stories.” Financial terms weren’t disclosed. Read more at Fortune.

Verizon (NYSE:VZ) acquired Skyward, a Portland, Ore.-based operations management platform for commercial drones. Skyward raised $8.15 million in venture funding from investors including Voyager Capital, Draper Associates, and Norwest Venture Partners.

Airbnb confirmed prior reports that it will acquire Luxury Retreats, a Canadian travel booking company. Financial terms weren’t disclosed, but previous media reports value the deal at between $200 and $300 million. Luxury Retreats raised $16 million in VC funding from iNovia Capital.

FIRMS + FUNDS

HgCapital, a London-based private investment firm, closed two funds. It raised £2.5 billion ($3.1 billion) for HgCapital 8, and £575 million ($714 million) for HgCapital Mercury 2

Cervin Ventures, a Palo Alto, Calif.-based early-stage venture firm, raised $56 million for its latest fund.

PEOPLE

Jason Pyle, Paul Zorner, Sam Fiorello, and Tom Urban have joined Radicle, a San Diego, Calif.-based accelerator and venture capital firm, as venture partners.

Longitude Capital promoted Dr. Josh Richardson to managing director.

Jeff Gutke has joined Talara Capital Management as a managing director.

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