Analysing the impact of COVID-19 on UK AI startups

| Poppy Aston

COVID-19 has had a seismic effect on all aspects of life. In particular, social distancing measures have drastically changed how we interact with each other and forced the digital landscape to evolve rapidly.

As such, artificial intelligence (AI), machine learning and big data have become a deeper part of our everyday lives. Whilst lots of companies use AI, we only use this sector tag if AI is an integral component of their business model. As it currently stands we track 1,104 AI startup and scaleup companies within the UK.

Many of these companies are receiving increased demand for their services, particularly within the healthcare sector which is on the frontlines of battling the virus. The most obvious example of this is the new NHS “track and trace system”, which uses a special algorithm designed to help curb the spread of the virus. 

From the impact on everyday operations to jobs at risk and fluctuating investment figures, we examine how UK startup and scaleup companies in this sector are truly faring in the face of the pandemic.

Impact Overview

Across the landscape, 60% of AI startups are currently at low risk – more than double the wider ecosystem average of 33% – whilst a whopping 27% are potentially positively affected.

Our research has revealed that only 1% of AI companies are critically affected and 2% are severely affected by coronavirus and the measures put in place to slow its spread; this is low compared with the wider ecosystem, where 17% of high-growth companies fall into these categories. There have been no permanent closures.

The relative stability of AI companies is in part due to the other businesses that they cater to and interact with. Industries such as healthcare, edtech and transportation, which are booming under lockdown, are some of the most common areas of crossover with AI.

Jobs at risk

There appears to be less of an economic impact on the AI industry than on other, more traditional sectors. Our research shows that only 17% of UK AI jobs are under critical, severe and moderate risk. In the wider ecosystem more than half (54%) of the high-growth startups employees fall into these same categories.

Areas of impact

When looking at the impact on a more granular level, we’ve found that a massive 22% of AI companies are experiencing a surge in demand. Likewise, 9% of AI’s are creating job opportunities, including market intelligence platform Signal AI and healthcare startup Huma

eHealth app Babylon has confirmed it is experiencing both. The AI app enables patients to talk to a virtual nurse about symptoms and conduct remote GP consultations, has been helping on the frontlines. 

The company launched a COVID-19 Care Assistant – a service designed to deliver appropriate information, and care to those affected. The service has already been used tens of thousands of times, giving help and support to patients across the UK. It has also partnered with the NHS to provide an Ask A&E symptom checker to help even more patients receive the information they need during the pandemic. To date Babylon has received an astonishing £518m in fundraisings, and is one of the UK’s 22 visible unicorn companies

It comes as no surprise that AI healthcare companies are being particularly positively affected by the pandemic. There is now a greater demand for technology that helps alleviate the pressure on the NHS and minimises the need for contact between patients and their doctors. 

Other AI companies are equally faring well, for instance those that specialise in RPA, customer agent automation, digital security and data analytics are seeing an increased demand for their services. Several AI automation and cloud companies have even offered their services for free to help struggling businesses and frontline workers. With the need for tighter infrastructure and superior technology in larger businesses, AI startups are experiencing an unprecedented demand for their services.

However, 7% of AI startups have reported a loss of key customer groups. The companies tend to be those providing services to the hospitality, aviation and events sector. Needless to say, these industries have been hit hard by the pandemic.

Fundraisings

Q1 2020 was an incredibly strong start to the year for AI, with 42 deals totalling £618m – the second highest amount since our records began. This was also a significant increase, nearly triple, from figures in Q4 2019 when fundraisings totalled £235m. 

Although the data is still coming, it’s clear that Q2 will show a significant decrease in investment activity compared to Q1. So far, there have only been 30 deals completed, totalling £180m As it stands, this is an approximate decrease of 70% from the previous quarter.

Of course, some decrease was to be expected in the initial months following the outbreak. The real story will be in the speed with which the funding market recovers; if investors continue to show reluctance in investing in new opportunities, then AI startups, particularly those in the earlier stages, could become under serious threat.

Investment stages

In Q1 2020, deal numbers into AI companies are down across all stages except the growth stage, which grew from eight deals in Q4 2019 to 13 in Q1 2020, totalling £558m. This broke the record amount invested set in Q2 2018. Both the seed and venture stage experienced dramatic declines in deal numbers, 32% and 30% respectively.

However, Q2 2020 is showing signs of a dramatic decrease in deals across all investment stages. But with only 9% of AI startups currently in the growth stage compared with 25% in the venture and 59% in the seed stages, it is imperative that investment is channeled into companies in the earlier stages. If not, we risk losing a generation of ambitious AI, and the pipeline of companies reaching the latter stages of growth will dry up.

The biggest deals of 2020

A total of £797m has been invested into UK AI startups in 2020 so far. More than half of this amount (£470m) has been secured by the top 5 largest fundraisers, most of which took place before lockdown. 

The top ranking deal was announced by AI security technology platform, OneTrust, in February 2020 and totalled £162m – led by investors Coatue and Insight Partners. The investment comes just seven months after OneTrust raised £160m, and takes the company’s total fundraisings to £322m.

University of Dundee spin-out, Exscientia, is the only company in the top 5 to have raised funding since lockdown. The pharmaceutical company secured £49.1m in equity fundraising to further expand it’s AI-driven drug development. This was Exscientia’s largest fundraising to date, and attracted new investor Novo Holdings with additional contributions from existing investors: Evotec, Bristol Myers Squibb and GT Healthcare Capital Partners.

Other notable fundraisings made by AI companies since lockdown, Decibel Insight, a global leader in digital experience analytics, recently secured £32.6m equity fundraising in May 2020, with contributions from Perwyn, Draper Esprit, Eight Roads Ventures, and Ventureforgood. Whilst adaptive behavioural analytics software and cyber crime preventer, Featurespace, also secured £30m in the same month led by Merian Chrysalis, with participation from existing investors IP Group, Highland Europe, MissionOG, TTV Capital and Invoke Capital Partners.

Both Decibel and Featurespace are companies providing services designed to provide deep analytics in order to prevent cyber crime. This indicative of the long-term impact of the pandemic on businesses who have been forced to think of new and novel ways of engaging with their customers digitally. It is likely that AI companies focused on digital security and deep data analytics, especially those with a consumer-centric focus, will continue to be hot in demand with investors.

OneTrust
£162m
Graphcore
£116m
Behavox
£77m
Thought Machine
£65m
Exscientia
£49m

Closing thoughts

On the whole, with the UK’s economy shrinking by 20.4% in April – the largest monthly contraction on record – all industries, including AI will have taken a hit. 

But, AI could be one of the industries to drive our recovery. In order for this to become a reality, investment will be key to fuelling the growth of the sector. Particularly for seed-stage companies which make up more than half of the sector and are crucial to its survival.

Methodology

All the data used in this blog is available on the Beauhurst platform, where you can search across 30k of the UK’s high-growth companies. Our recent addition of a COVID-19 impact dataset means that each company has been assigned a number of impact tags. From these, our in-house analysts have determined a company’s COVID-19 impact status, ranging from permanent closure to potentially positive impact. 

As a result you can use our data to:

Identify new opportunities in positively impacted businesses

Save time by focussing your business development efforts on leads that are performing well and are in need of your products and services, whether that’s a stream of new candidates, legal and professional services, or new funding to continue their growth. 

Identify new opportunities in negatively impacted businesses

Identify opportunities that others have missed, from top talent exiting distressed companies, to more affordable avenues for investment and acquisitions in a diminished market.

Understand your exposure to risk

Monitor your client portfolio, region or sectors of interest to understand where your strengths and risks lie. Receive notifications when any companies in your selection see a change in impact status, so you can act quickly and effectively.

Help those in need

Determine which companies are struggling in your region or local authority, and reach out to them with immediate business support.

Want to find out more? Book a demo to see how you can leverage this data.

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