Software & Technology
Investment in Artificial Intelligence is increasing rapidly, with countries all over the world investing into an extensive range of AI businesses. AI is significantly changing the way business is done. AI has the potential to induce major changes to years to come, making investment in it an encouraging prospect.
For growing companies in the UK, access to funding can be a large obstacle to their development and the UK often loses the larger-scale economic benefits of AI business growth to larger companies. Many factors influence a potential investment into artificial intelligence, as observed by the UK Intellectual Property Office (IPO), who recently commissioned a report named “Intellectual Property and Investment in Artificial Intelligence”.
The report was produced based on a study of literature on AI and AI investment, as well as information obtained from interviews with stakeholders. The report also included discussions with members of the UKIPO team, as well as other parties already engaged in related UKIPO studies on IP and AI.
Some factors which may influence artificial intelligence investment include; human capital, scale-up and funding culture, research, availability of training data and IP protection.
Defining Artificial Intelligence
Artificial intelligence is categorised based on the capacity to mimic human characteristics and generally fall into one of two types:
- Narrow artificial intelligence: Generally performs a single task or set of tasks, as well as being the most common form of AI. Examples include facial recognition, recommender systems and search engines.
- General artificial intelligence: A more advanced type of AI which is alike with human capabilities, such as chatbots and autonomous vehicles.
Increasing investment in artificial intelligence
The report suggests that there is an increasing global pressure and interest in adopting and developing new artificial intelligence technology, particularly the pharmaceutical and insurance sectors.
A key attraction of artificial intelligence is that businesses can make significant cost savings, through both increased productivity and business opportunities related to AI adoption. The US have shown a great interest in investment in AI, currently investing the most into AI in the world. Figures show that China follow closely behind. The UK lead in third place globally in terms of AI investment, and first in Europe.
AI investment in the USA, China and the EU accounted for over 92% of the total private equity investment in AI between 2011-2018. During this period, UK-directed investment in AI accounted for a total of 55% of total European investment. It is also estimated that by 2030, wider implement of AI in the UK could result in a 22% boost to the UK economy.
What factors influence, or limit, investment in artificial intelligence?
The report discusses the factors which influence decision making on UK investment in AI, including:
Skills and Talent
An important determinant for AI development in the UK is the large pool of AI and broader software talent available.
The UK successfully attracts talent from overseas, with London leading as the largest technology hub in Europe for AI development activity. English-speaking countries further attract investors to the AI space, with US developers typically moving to the UK when they enter the European market.
The European market also has varying regulations and language requirements, whereas the US market represents a large homogenous and English-speaking market with significant capital available and large companies looking to acquire start-ups.
Participants in the study generally agreed that in certain respects the UK was a good location to invest in a start-up AI business, as there is availability of human capital, as well as great AI knowledge within the UK workforce. The UK also has a strong reputation of technology hubs and universities. However, the UK is also perceived having too small a market to scale up, meaning that it is often difficult to attract large investment needed for major long-term growth.
Scale-up and funding culture
A factor that may influence investment in AI is that of the UK market being viewed as too small, with limited access to funding sources to scale up.
The report further noted that many start-ups and young companies choose to move to the USA, as it is a much larger market. The US also has a strong reputation for risk, meaning that it is seen as desirable as the place to get large investment. Participants agreed that the popularity of the US poses a threat to the UK, which risks losing out on the larger-scale economic benefits of AI business growth to other much larger companies.
Although the UK is good at developing AI solutions, it lacks investment and AI company growth beyond the start-up stage.
The UK, in contrast with the US, generates a low number of successful AI related businesses compared to the USA, despite strong academic research leading to a large potential workforce and significant investment in the area.
The UK has established a strong reputation as a place to incubate AI businesses but too small a market to grow large companies and to secure the larger investments needed for these.
Research and training data
A limiting factor for the UK is the insufficient availability of unique training data. Even if a unique AI technology or solution is developed, there is often a lack of suitable training data available in the UK, meaning that investment in AI is less promising.
This limitation contrasts with more open markets such as the US, or state-controlled markets such as China, suggesting why these two countries lead in front of the UK in investment of AI.
The UK IP framework is generally seen as trusted and reliable, and therefore not overly concerning in investment decisions. However it was observed in the report that early AI start-ups do lack experience of using the UK IP framework.
The difficulty in protecting software inventions in a timely manner may limit the ability of software start-ups to attract investment. Although there is an assumption that IP protection is itself an incentive for further innovation, this may no longer be true.
The UK IP framework was not a fundamental consideration for investment by the participants used in the report, and was not concerning in investment decisions, suggesting that other factors are more important. It was further noted that early-stage AI start-ups lacked experience of using the UK IP framework.
Many young companies plan an early exit or move to the US, who have a reputation for risk-taking and large investments. The UK often loses the larger-scale economic benefits of ai business growth to larger companies.
The UK IP Framework is not a fundamental consideration for investment by the participants in the IPO’s study.
Other factors currently dominate investment decisions. The availability of human capital particularly PhD graduates, AI know-how within the UK workforce and the reputation of technology hubs and universities are particularly important. Government grants and access to early-stage funding are also essential.
Study participants regardeded the UK as a good location to invest in a start-up AI business for several reasons. The UK has a relative strength of the above factors in relation to other locations. In particular, the majority of UK participants had graduated from UK universities with AI qualifications.
The UK has established a strong reputation as a place to incubate new technologies, including AI. The UK is seen as too small a market to scale-up and too hard to get the larger rounds of investment needed for major long-term growth. Many young companies choose early exit or moving to the USA. It is a far larger market and has a reputation for risk and as the place to get large investment. This poses the risk of the UK losing out in the larger-scale economic benefits of AI business growth to other much larger economies.