Eye On AI: After Q4 Slowdown, AI-Related M&A Picked Back Up In Q1

This column is a look back at the week that was in AI. Read the previous one here.

Nvidia made more AI waves last week when it acquired not one, but two startups in the industry.

The chip giant, which has made dozens of investment deals in the AI space, announced it had bought Run:ai for a reported $700 million. It was also reported that it bought Deci AI. The startups help companies develop AI models more cheaply.

There’s been plenty of analysis of those deals, but they get us thinking about what the AI market has seen M&A-wise since ChatGPT exploded on the scene a year ago. While everyone normally looks at the funding numbers (which we recently did), how about the numbers where VCs and other investors actually make money?

In the first quarter, M&A involving VC-backed AI-related startups actually saw a nice increase after it ended last year on a down note. In Q1, 55 such startups saw M&A exits — per Crunchbase data — compared to just 38 deals in Q4 2023.

The biggest announced deal in the quarter for an AI-related startup was services company Veradigm buying Boston-based ScienceIO — which has developed a biomedical language platform to transform medical text into data and insights — for $140 million.

That Q1 2024 number is slightly down from the 62 deals announced last year in the same quarter, but it’s not much of a difference.

It’s likely not surprising the numbers for deal-making are somewhat small right now in the AI space. That likely has to do with a lot of things, such as the overall M&A market still looking for a jumpstart after escalating interest rates chilled the market, as well as many VC-backed AI startups having sky-high (over-inflated?) valuations that could be keeping buyers on the sidelines.

Nevertheless, the upward trend is something investors surely like to see. There are already questions as to how some startups will be able to compete in the market, and while the IPO market may be opening up, few AI startups are mature enough to go that route.

M&A dealmaking offers a very real route for investors to show some real returns in what has been a rough couple of years in that regard for venture. With private equity and strategics like Microsoft and Nvidia flush with cash (Nvidia has seen its cash and short-term investments basically double to $26 billion in the past four quarters), it seems that upward trend in deals could continue.

Things that caught our eye and other stuff:

This week AI computing firm Blaize announced it raised a $106 million round from the likes of Franklin Templeton, Mercedes Benz, Temasek and others. The El Dorado Hills, California-based startup specializes in edge computing in the automotive, mobility, smart retail, security, industrial and metro market sectors. What makes the deal interesting is that Blaize also said last December it would go public in a SPAC deal with BurTech Acquisition, so it may have more financing on the way. Blaize had previously raised $224 million, per the company.
It looks like AI coding startups have investors’ attention right now. Last week both Palo Alto, California-based Augment and San Francisco-based Cognition both raised rounds of $227 million and $175 million, respectively. Some big-name investors participated in those rounds, including Sutter Hill Ventures, Index Ventures, Lightspeed Venture Partners and Founders Fund. Considering those names, AI coding assistance seems to be a specific niche to watch closely.