Montreal’s Element AI closes deal for $102 million

MONTREAL – Element AI, a start-up in artificial intelligence technologies, has attracted a landmark investment of $102-million (U.S.) just eight months after launching. The organization has the ambitious goal of building a
company that can rival Silicon Valley tech giants.

The financing for Element AI has support from some of the largest names in the global tech sector, the Globe and Mail reported. The investors are led by San Francisco venture-capital firm Data Collective and backed by Intel Corp., Microsoft Corp. and a number of institutional investors, including China’s Tencent Holdings Ltd., Fidelity Investments Canada, Real Ventures, National Bank of Canada and the Business Development Bank of Canada.

The large financing for such a young company establishes Element AI as one of the hottest startups in a particularly hot corner of the technology industry; it represents the largest Series A early-stage investment yet for an AI firm.

“The big message is that AI is for real, there is a clear return on investment, and some of the world’s largest companies are speaking with their dollars,” said Real Ventures general partner and Element AI co-founder JS Cournoyer (pictured). “The world has noticed and they do not mind putting significant dollars into early-stage companies in Canada that have ambitious projects.”

The financing also bolsters the status of Montreal as an important centre for the development of AI-related businesses. The city is home to renowned AI pioneer and University of Montreal professor Yoshua Bengio, an Element AI co-founder.

“This isn’t a one-year-old company. This is the fruition of 20 years of very smart people pushing for something bigger broadly across Canada – and very specifically Yoshua developing something sustainable, broad, deep and amazing at University of Montreal,” said Matthew Ocko, a managing partner at Data Collective.

Most importantly, the financing represents the boldest move yet by supporters of the burgeoning Canadian AI sector to build on the country’s early lead in what many believe will become the next dominant global technology platform.

Already, Alphabet Inc.’s Google Uber Technologies Inc., Microsoft, China’s Baidu Inc. and others have staked an early claim on AI dominance, building self-teaching software that powers Internet searches, recommends content, embodies personal smartphone assistants and operates vehicles autonomously.

They have also poached many renowned Canadian-trained AI specialists and snapped up several AI startups here and abroad. In response, the governments in Ottawa, Ontario and Quebec have committed hundreds of millions of dollars to fund AI institutes and research initiatives to ensure that leading AI scientists stay in the country.

Fears of a few Silicon Valley giants cornering all the AI talent extend beyond Canada. “All but the largest companies in the world are under palpable threat of their competitors acquiring a sustainable AI-powered advantage” over them, Mr. Ocko said.

That’s the opportunity Element AI – which has hired 106 people, mostly in Montreal, and plans to add another 150 by next January, primarily at a new Toronto office – is seeking to conquer. “If we could find a way to build a business that gets access to this amazing talent, but we provide it as a service to third parties who want to get access to the talent but just can’t, then there’s a massive business opportunity there,” Mr. Cournoyer said.

Element AI’s initial business model is a hybrid: It plans to fund dozens of AI startups but is also working directly with large corporations, using AI to improve their operations, particularly in the areas of cybersecurity, financial technology, robotics in manufacturing and supply chain and logistics. Element AI has completed 10 such initial contracts and booked millions in revenues, chief executive officer and co-founder Jean-François Gagné said.

These aren’t mere consulting contracts. AI algorithms need to be fed with massive amounts of data, which Element AI’s customers bring. Over time, Element AI’s plan is to build a broad-based AI platform incorporating what its algorithms learn from these contracts, which it will then offer to thousands of other customers to solve their problems. One of Element AI’s key pitches is that it is not a Silicon Valley heavyweight.

“We’re that neutral, trusted player that will provide the same level [or] better level of technology than otherwise [customers] would be able to get access to,” Mr. Gagné said.

Element AI’s origins date to 2015, when Mr. Cournoyer was mapping out Real’s future investment strategy and determined “AI was the next natural evolution” of technology after the widespread adoption of the Internet, mobile communications and cloud-based computing [Real has since invested in more than 30 AI startups]. It was also clear that as the tech giants scooped up the talent, it would be harder for everyone else to bring AI capabilities to their businesses.

Mr. Cournoyer reached out to Mr. Gagné – a successful serial entrepreneur he had previously financed and whose previous company had been advised by Prof. Bengio – and invited him to join as an entrepreneur-in-residence and help flesh out Real’s AI thesis. Their original idea was to launch a “studio” or accelerator to hatch AI firms, but that morphed into a plan to aggregate some of the world’s leading AI talent in one place as well. At the same time, they made clear to academics they hired that they were free to continue their outside research work, in contrast to their much larger rivals.

Element launched last October with seed financing from Real and others and was immediately flooded with inbound interest from corporations around the world keen to work with them and investors looking to get in on the action; Microsoft invested last December.

After initially planning to raise $40-million in their first venture-capital round, Element AI’s founders realized the opportunity was much bigger and that their timing couldn’t be better. “We looked at each other, [Mr. Gagné] and I, and we said, ‘We want to build something massive. The money is there from amazing people. Let’s be as ambitious as we can be and let’s take the money,’” Mr. Cournoyer said.