The general trend for venture capital investment in the Physical Security Business has been one of decline since 2014, when it invested over $300m in 12 transactions. In 2017 we identified 11 transactions by venture capital companies investing $121.9m into physical security companies; Which was a significant gain on 2016 when we identified 9 transactions investing some $96.3m, the lowest we recorded since 2012.
This does not necessarily indicate a lack of interest by VC's in our industry because it replicates the general trend of VC investments in US businesses, which fell significantly in 2016 after a 4 year period of growth. In 2017 it has bounced back some what.
Venture Capitalists have invested an average of $219m per annum in the physical security industry over the last 6 years, so although 2017 investment is disappointing it is encouraging to see that it has at least marginally increased. The security industry is looking for financial support to invest in better performing products so there is a need for venture capital investment to return to higher levels.
Large pools of capital have been raised by VC's in recent quarters, so they now have plenty of available funds to invest in markets that offer high rewards. The VC business has identified Artificial Intelligence as offering such potential. There is good reason to be optimistic about more investments going into the Video Surveillance market particularly to develop AI Chips and Deep Learning Algorithms, with a good proportion of this being focused on AI Video Analytic solutions.
￼Artificial intelligence (AI) and machine learning (ML) have potential use cases in virtually every industry and the ability to reshape the way people live and do business. Breakthroughs in deep learning in the past few years have engendered a proliferation of artificial intelligence applications and applying this to video analytics is one of the major growth applications.
VC investment in the vertical is on an extended growth trend to levels 12x above what we saw in 2008. 2017 recorded $6 billion invested across 643 VC deals in AI/ML. Similarly, after years of negligible exit activity, the last 2 years represented a substantial uptick in liquidity and a shift to a new stage of the AI/ML exit environment.
The majority of investment in AI Analytics has been invested in US based companies by US based venture capital companies. As we have seen finance is available but there is strong competition for it from other hi-tech businesses. However the Physical Security industry has a strong case to increase its share over the next 2 years and beyond. 2018 could see a major uplift of investment through venture capital and private equity resources well beyond the halcyon days of 2014 / 2015. A.I. Video Analytics may take the major share of this.
Data from our new report (to be published in May) “The Global Market for Intelligent Video Analytics 2018-2023" has identified some 120 companies that are AI Semiconductor Specialists & Video Analytic suppliers. Of these 33% of the sample are based or owned by US companies with the UK having 6% and China, Israel Taiwan and India following with a 5%. We estimate that the sample accounts for approximately 70% of the total population of companies servicing this business today. The USA is clearly the leader in AI Technology but China is now pouring in vast resources into the business.
According to The Financial Times, a move on the part of the Chinese government to invest $460m in the facial recognition startup Megvii Face++ comes as China is investing billions in artificial intelligence (AI) research and technology in an effort to counter the USA’s current lead.
A Chinese state-owned venture capital fund together with the Russia-China Investment Fund made the investment. The latter is backed by the sovereign wealth funds of China and Russia. The financial arm of Alibaba, also invested in the company. The biometrics startup had a valuation of $1.5 billion prior to the recent influx of cash.
Earlier this year, the State Council in China revealed its ambition to become the leader in AI research by 2030. Government-run venture capital funds are supporting this goal by investing in Chinese AI technology companies.
Hong Kong and Beijing-based SenseTime Group, which produces deep-learning based software for facial recognition, autonomous driving and video analyzing, said earlier this month it had “attracted lots of interest” in its latest financing round.
People familiar with its plans said the firm intends to raise about $500 million. SenseTime, which lists various police departments in China as clients, has joined forces with its backer China’s CDH Investments to raise about $450 million to invest in other firms working on artificial intelligence technologies.
Considering that the Chinese market for Vide Surveillance equipment is by far the largest in the world more than twice the size of the USA (the next largest market), it is not surprising that China is investing billions in artificial intelligence (AI) research and technology but it is believed that current AI Video Analytics in China is based on Nvidia processors and technology, currently the worlds leading supplier based in the USA.
This article is based on information taken from our annual report – The Physical Security Business 2017 to 2022 and our forthcoming report – “The Global Market for Intelligent Video Analytics” to be published Q2 2018.
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