Allen Institute for AI raises $30M fund for incubator to boost more startups amid AI gold rush – GeekWire

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Nate Bek
2023-05-10 10:49:58

Seattle-based Allen Institute for Artificial Intelligence announced a second fund of $30 million to back spinouts of its incubator program. (GeekWire Photo / Todd Bishop)

The Allen Institute for Artificial Intelligence (AI2) raised a fresh $30 million pre-seed fund to invest in “AI-first” startups born from its incubator program.

The second fund for the AI2 Incubator comes at a key moment for the AI sector, as more companies adopt generative AI technology and investors pour billions into nascent startups.

“It’s such a great time to launch a new enterprise,” said Oren Etzioni, former CEO of AI2 who is now technical director of the incubator.

As other venture capital firms and startup studios jump on the AI hype train, leaders at AI2 say their incubator is uniquely positioned to take advantage of AI tailwinds.

The connection to AI2 itself is a key differentiator.

Launched nearly a decade ago by late Microsoft co-founder Paul Allen, the Seattle-based institute is backed by $100 million in annual funding and employs more than 200 AI researchers, engineers, professors, and staff. They have published upwards of 1,000 research papers in the fields of natural language processingcomputer visioncommon sense reasoning, and other key components of artificial intelligence.

Researchers help startup founders at the incubator test ideas and develop and train AI models. They also collectively make for a pool of potential talent for startups.

Entrepreneurs also benefit from joining AI2’s network of more than 80 AI founders, who support one another through a private Slack workspace and in-person collaboration.

Current and former entrepreneurs in the program told GeekWire last year that the incubator provides resources, connections, guidance, and technical expertise that would have been difficult or impossible to access otherwise, accelerating the progress of their startups.

“The real-world practical applied expertise here is unparalleled,” said Jacob Colker, a managing director of the incubator.

“If you’re building a company with AI at the core of the value proposition and at the core of the product differentiation, it would be irresponsible for you not to come talk to us,” he said.

The incubator raised $10 million for its first fund four years ago.

More than 20 companies have gone through the AI2 incubator. Notable spinouts include (acquired by Baidu in 2017); (acquired by Apple in 2020); and Lexion (raised $20 million last month).

AI2 startups have gone on to raise more than $160 million in venture capital, and their combined valuation is more than $800 million. More than 50 venture firms have participated in the investment rounds.

The latest fund is backed by venture capital heavyweights including Madrona Venture Group, Sequoia Capital, and Two Sigma Ventures, which all previously invested in the first fund.

“The [Generative AI] era will produce some very special and enduring companies,” Matt McIlwain, managing director at Madrona, wrote in a blog post. Madrona, which is betting big on generative AI, led both AI2 incubator funds.

The new fund will back 5-to-7 startups annually over four years. A portion of capital will be allocated to supporting AI2’s existing portfolio companies at later stages, Colker said.

Pre-seed funding of up to $600,000 will be paid out to startups that successfully complete the program.

AI2 takes about a 9% stake in incubator companies. Startup studios and labs often take a higher equity percentage, but also have in-house teams that do much of the hands-on work to conceive and build startups.

Entrepreneurs at AI2 have the option to take a stipend of up to $10,000 a month to cover personal expenses or provide a small amount of capital to test and develop early startup ideas.

AI2 does not require board seats, but asks incubator companies to be a board observer.

As large companies incorporate AI tools into their existing product suites and leverage their distribution channels to increase adoption, the incubator aims to help startups differentiate by working with founders who can identify unique use cases.

Etzioni pointed to AI2 spinout Yoodli, which sells a platform to help people communicate more effectively.

“It’s not like they’re creating a speech coach inside [Microsoft] Word or Office,” he said. “They’ve created a whole new category of product.”

AI2’s new fund will help strengthen Seattle’s reputation as an AI hub, with giants including Microsoft and Amazon based in the region, and a flurry of other AI startups getting off the ground. Venture capital firm Ascend this week announced a $25 million fund with plans to double down on backing AI startups.

Seattle is the home base for AI2 but “we are no longer just a Seattle incubator,” Colker said. More than 50% of the recent cohort was based outside the area.

Other limited partners in the new fund include Vinod Khosla, Evergreen Ventures, Washington Research Foundation (WRF), Irongrey, Cercano Management, J4 Ventures, and Wilson Sonsini Goodrich & Rosati.

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