13 ms·

Element AI sold for $230M, as founders saw value mostly wiped out: document

54 points by yazr 6y ago

yazr 6y ago
Paywall copy from reddit https://old.reddit.com/r/MachineLearning/comments/khin4c/n_montrealbased_element_ai_sold_for_230million_as/ https://old.reddit.com/r/MachineLearning/comments/khin4c/n_m...
- ignoramous 6y ago
  Also: https://archive.vn/evQgH https://archive.vn/evQgH
  - musicale 6y ago
    archive.vn has never loaded for me; a lot of the time it doesn't even resolve
    - ignoramous 6y ago
      That's probably Cloudflare (or some stub resolver using Cloudflare DNS answers). https://community.cloudflare.com/t/archive-today-does-not-resolve-with-1-1-1-1-works-fine-on-other-resolvers/71315 https://community.cloudflare.com/t/archive-today-does-not-re...
- Bancakes 6y ago
  You're the salt of the Earth
legerdemain 6y ago
In Firefox, turning on the reader view and reloading the page gets through the paywall, as it does with many paywalled publications.
nrmitchi 6y ago
The actual title is "Element AI sold for $230-million as founders saw value mostly wiped out". This is an important difference, since the submitted title here implies they were entirely wiped out. It looks like this company raised ~$250M, and sold for $230M. This isn't any sort of nefarious "founders got wiped out"; they sold for less money than they raised and this is the typical outcome in that situation. Also, from the article: > As part of the deal – which will see ServiceNow keep Element AI’s research scientists and patents and effectively abandon its business – the buyer has agreed to pay US$10-million to key employees and consultants including Mr. Gagne and Dr. Bengio as part of a retention plan. This is the kind of "everyone got wiped out but the founders got an out-of-band parachute" that highlights an often-understated difference between "founders" and "just an employee". Even with a terrible outcome, founders and top executives can still manage to come out on top, and only employees actually get wiped out.
- deleted 6y ago
  [deleted]
- dmix 6y ago
  Yeah this is basically part of the deal when you take VC and raise hundreds of millions. Don't expect much in return if you fail to deliver, or really unless you skyrocket at least 10x as expected in such arrangements. This is the sort of middle ground where it's not a complete disaster but some value is still generated out of the entity.
- arolihas 6y ago
  It also says ServiceNow agreed to hiring many of the employees in this deal so it’s not that catastrophic. Although yes their options aren’t even worth the paper they were printed on.
  - nrmitchi 6y ago
    Ya, but let's not pretend that most of these employees couldn't haved walked outside and ended up with a full line up of interviews scheduled for the first week after the holidays.
  - 6y ago
whoisjuan 6y ago
Well, nothing surprising here. Element AI raised about 260MM, failed to create a revenue trajectory so it sold itself on the merits of its IP to ServiceNow for 230MM. Of course the founders and employees will get wiped out. Investors are first in line to get paid. If you’re a founder and you ever are doing a big round try to seek for secondary liquidity. It’s fair for founders to have some way to build financial stability when they are sacrificing so much. Secondary liquidity terms are way common nowadays than they used to be. Element AI founders should have done that when they did their Series B and raised 150MM. I know there are some purists that think that giving founders secondary liquidity can remove certain accountability, but honestly if you’re investing in a group of people and you believe giving them some reasonable path to partial liquidity pre-exit, you probably have some fundamental doubts on that investment and that group of people. I feel that nowadays that’s basically a litmus test for investment strength.
fierarul 6y ago
Not sure what the angle should be here. The founders didn't manage to raise the company; it was soon to be bankrupt. Of course the founders would be wiped out. Still, they have $300,000 worth of shares and "the buyer has agreed to pay US$10-million to key employees and consultants including Mr. Gagne and Dr. Bengio as part of a retention plan". Business doesn't always work out. Getting a cool $1M after trying and failing is not the worst thing that could happen.
- 908B64B197 6y ago
  The company's value is in it's employees. They have a world class expertise.
  - fierarul 6y ago
    That's not the market way of looking at it. How will a bankrupt company retain their world class employees? They are one missing pay-check and counteroffer away from moving elsewhere.
    - 908B64B197 6y ago
      That's what I was saying. The value of Element AI was that by buying it you get all the employees. Had they waited for the company to go bankrupt they would be competing with everyone else trying to buy the IP and the key employees.
      - fierarul 6y ago
        This I agree with. The only value remaining in the company are its employees, not revenue streams, not products, just employees and potential.
Barrin92 6y ago
>Element AI invested heavily in hype and and earned international renown, largely due to its association with Dr. Bengio. It raised US$102-million in venture capital in 2017 just nine months after its founding, an unheard of amount for a new Canadian company, from international backers including Microsoft Corp., Intel Corp., Nvidia Corp., Tencent Holdings Ltd., Fidelity Investments, a Singaporean sovereign wealth fund and venture capital firms. This has been bothering me for a while. Ridiculous sums of money invested purely on name recognition, in particular in 'AI', rather than allocating capital to people who actually at least have a product.
agentofoblivion 6y ago
I don't know anything about this company. But I work at FAANG as an ML scientist and spent about 3 months this year working on a research project that demonstrated big performance improvements of a new tech. It got enough interest that it led to a new project that brings this to production. This has led to countless headaches. The skills needed to solve these challenges are very different. My more academically minded colleagues don't seem to have the intuition for seeing around this corner and understanding what it takes to build something that actually works. This is a long way of saying: if a company is founded by and ran by such academics, I can see how this would be a recipe for disaster when it came to actually building and shipping products.
- qeternity 6y ago
  Really good insight. When I put engineering job posts up, we get loads of PhD applications...a staggering amount. And all of these people look great on paper. It’s only when you start talking to them off script that you understand a career in academia has radically different incentive pressures than the private sector. We end up passing on most, not because they aren’t brilliant, but because they’re very one dimensional, which is what suits academia.
  - musicale 6y ago
    It must be surprising to find "brilliant" people who are apparently incapable of learning how to do new things.
    - concreteblock 6y ago
      I don't think it's fair to characterize such people as "incapable of learning how to do new things" if they're not even being given the opportunity to learn. I'm not saying that the OP should hire these people, or that they would even be good hires. Maybe they don't want to take the risk or time of training up a new employee. It just seems like a bit wierd non-sequitur to draw conclusions on someone's learning capabilities based on their performance in an interview outside their usual domain.
ReDeiPirati 6y ago
Unlike Landing.ai and C3.ai, Element.ai was lacking of a solid go-to-market strategy from day 1.
- throwawayeai 6y ago
  I worked at Element AI, and that was true from the inside to an extent that was borderline terrifying. On orientation we were told that EAI's strategy was to hire as many smart individuals as possible. There was no focus on delivering an actual product, it was demo after demo of semi-impressive DL models. It makes me sad thinking of all the brilliant colleagues I had that were simply wasting their talent.
  - amelius 6y ago
    > It makes me sad thinking of all the brilliant colleagues I had that were simply wasting their talent. At least they were not making people click ads ...
  - rfrey 6y ago
    That strategy worked out ok for DeepMind.
    - lostmsu 6y ago
      And OpenAI. So far.
  - gumby 6y ago
    This was why jg bought DeepMind. Presumably they hoped lightning would strike twice.
- yourapostasy 6y ago
  > Unlike Landing.ai and C3.ai... What do you believe the go-to-market strategy is of those two? For C3.ai, my interpretation was they're trying to become the Microsoft of ML, re-packaging the entire ML pipeline into a more consumable developer experience. They seem currently focused more upon the model analytics part of the pipeline than say, training data selection or ETL to ingest raw data (whether to train upon or run in production), or any number of other pieces of the pipeline. Landing.ai appears to be more tightly focusing their messaging on the operational aspects of the ML pipeline, though not so much the modeling part that C3 appears to emphasize. They also seem to very tightly narrow their focus on machine vision ML. I'm probably wildly off though, having had no access to the actual platforms and ever used them in anger.
latenightcoding 6y ago
Anybody familiar with the matter knows if Bengio scaled down his academic duties while raising money for Element AI?
- mlthoughts2018 6y ago
  He did scale them down, but he forgot to subtract the mean first which is why his duties were biased and the outcome was not efficient.
mlthoughts2018 6y ago
It’s funny to see this around the same time as this other thread where people are going through so much mental gymnastics to avoid obvious conclusions of how horrible it is to work for a startup, https://news.ycombinator.com/item?id=25493646 https://news.ycombinator.com/item?id=25493646
- brutus1213 6y ago
  If the start up offers market-rate wages, I am not seeing the downside. Job insecurity vs. chance to get more experience/lottery ticket? Seems reasonable .. but then again, I don't work at a startup.
  - mlthoughts2018 6y ago
    Start ups don’t offer market rate compensation. Typically salaries will lag by 30% or more compared with even mid-level tech companies, not even considering FAANG at all. That’s just base salary. Most startups don’t pay a bonus, and the equity is usually very poor on an annualized basis, and it’s mostly tied up in options where you have to deal with the strike price and tax issues. A wildly successful compensation outcome for an employee at a startup would be ~75% of a comparable market salary plus a few hundred thousand dollars of post-tax income from equity after 8-10 years, amounting to say $25,000 per year of equity/bonus. At a totally mid range tech company or large company with some technology, you would make 100% of that market rate and probably make $25,000 just in a bonus per year, plus an additional $30k to $50k of RSUs per year, which you don’t have to wait 8-10 years to sell. In an extremely conservative estimate, you’re probably losing $200,000 of post tax equity / bonus income over 8 years by choosing a startup over a mature but run-of-the-mill tech company or other large company that has tech teams. If your market salary is ~ $150k, the startup is probably paying $115k and will give worse raises and promotions. Conservatively that’s another $180k of lost post-tax income over 8 years (35k delta times 8 minus taxes). In total that’s about $400k of lost post-tax income by working at the start up for 8 years, and the alternative I’m comparing to is a very conservative estimate $150k base, $50k equity $25k bonus assuming no stock growth or raises, which is a totally run of the mill offer in large cities even 5 years ago for roles with 3-4 years of experience. And that’s under a huge IF the startup is wildly successful and all those options are actually worth a few hundred thousand after taxes. That’s a rare outcome. They could be worth nearly nothing, and then you’re talking about foregoing around $550k of post tax income over 8 years (225k all in per year minus 115k at a failing startup, per year, x8 then less taxes). Is the high, high risk of leaving $550k on the table worth it for vague promises of “interesting work” that isn’t guaranteed?
Apocryphon 6y ago
So much for Montréal becoming the Silicon Valley for AI. Another Canadian/non-Californian startup bites the dust.
- person_of_color 6y ago
  Never 4get North
  - 908B64B197 6y ago
    The AR glasses?
- 908B64B197 6y ago
  The problem is AI is a tool to build a product. It's not a product in itself. Element AI's product was it's talent (mostly all grads from MILA just next door) and the fact it's one of the few places where you could get as many great devs and deep learning experts in the same room. But as long as folks focus on AI and not building an ecosystem or a product we'll see these acqui-hires.
dvnguyen 6y ago
Wow $200M funding for a startup with no products. Not even sure if they were serious in building a product or just cashing out the AI hype and academic credentials.
claydavisss 6y ago
Looks like someone at ServiceNow owed a VC a favor.

54 points by yazr 6y ago

yazr 6y ago

Paywall copy from reddit https://old.reddit.com/r/MachineLearning/comments/khin4c/n_montrealbased_element_ai_sold_for_230million_as/ https://old.reddit.com/r/MachineLearning/comments/khin4c/n_m...

ignoramous 6y ago
Also: https://archive.vn/evQgH https://archive.vn/evQgH
- musicale 6y ago
  archive.vn has never loaded for me; a lot of the time it doesn't even resolve
  - ignoramous 6y ago
    That's probably Cloudflare (or some stub resolver using Cloudflare DNS answers). https://community.cloudflare.com/t/archive-today-does-not-resolve-with-1-1-1-1-works-fine-on-other-resolvers/71315 https://community.cloudflare.com/t/archive-today-does-not-re...
Bancakes 6y ago
You're the salt of the Earth

legerdemain 6y ago

In Firefox, turning on the reader view and reloading the page gets through the paywall, as it does with many paywalled publications.

nrmitchi 6y ago

The actual title is "Element AI sold for $230-million as founders saw value mostly wiped out". This is an important difference, since the submitted title here implies they were entirely wiped out. It looks like this company raised ~$250M, and sold for $230M. This isn't any sort of nefarious "founders got wiped out"; they sold for less money than they raised and this is the typical outcome in that situation. Also, from the article: > As part of the deal – which will see ServiceNow keep Element AI’s research scientists and patents and effectively abandon its business – the buyer has agreed to pay US$10-million to key employees and consultants including Mr. Gagne and Dr. Bengio as part of a retention plan. This is the kind of "everyone got wiped out but the founders got an out-of-band parachute" that highlights an often-understated difference between "founders" and "just an employee". Even with a terrible outcome, founders and top executives can still manage to come out on top, and only employees actually get wiped out.

deleted 6y ago
[deleted]
dmix 6y ago
Yeah this is basically part of the deal when you take VC and raise hundreds of millions. Don't expect much in return if you fail to deliver, or really unless you skyrocket at least 10x as expected in such arrangements. This is the sort of middle ground where it's not a complete disaster but some value is still generated out of the entity.
arolihas 6y ago
It also says ServiceNow agreed to hiring many of the employees in this deal so it’s not that catastrophic. Although yes their options aren’t even worth the paper they were printed on.
- nrmitchi 6y ago
  Ya, but let's not pretend that most of these employees couldn't haved walked outside and ended up with a full line up of interviews scheduled for the first week after the holidays.
- 6y ago

whoisjuan 6y ago

Well, nothing surprising here. Element AI raised about 260MM, failed to create a revenue trajectory so it sold itself on the merits of its IP to ServiceNow for 230MM. Of course the founders and employees will get wiped out. Investors are first in line to get paid. If you’re a founder and you ever are doing a big round try to seek for secondary liquidity. It’s fair for founders to have some way to build financial stability when they are sacrificing so much. Secondary liquidity terms are way common nowadays than they used to be. Element AI founders should have done that when they did their Series B and raised 150MM. I know there are some purists that think that giving founders secondary liquidity can remove certain accountability, but honestly if you’re investing in a group of people and you believe giving them some reasonable path to partial liquidity pre-exit, you probably have some fundamental doubts on that investment and that group of people. I feel that nowadays that’s basically a litmus test for investment strength.

fierarul 6y ago

Not sure what the angle should be here. The founders didn't manage to raise the company; it was soon to be bankrupt. Of course the founders would be wiped out. Still, they have $300,000 worth of shares and "the buyer has agreed to pay US$10-million to key employees and consultants including Mr. Gagne and Dr. Bengio as part of a retention plan". Business doesn't always work out. Getting a cool $1M after trying and failing is not the worst thing that could happen.

908B64B197 6y ago
The company's value is in it's employees. They have a world class expertise.
- fierarul 6y ago
  That's not the market way of looking at it. How will a bankrupt company retain their world class employees? They are one missing pay-check and counteroffer away from moving elsewhere.
  - 908B64B197 6y ago
    That's what I was saying. The value of Element AI was that by buying it you get all the employees. Had they waited for the company to go bankrupt they would be competing with everyone else trying to buy the IP and the key employees.
    - fierarul 6y ago
      This I agree with. The only value remaining in the company are its employees, not revenue streams, not products, just employees and potential.

Barrin92 6y ago

>Element AI invested heavily in hype and and earned international renown, largely due to its association with Dr. Bengio. It raised US$102-million in venture capital in 2017 just nine months after its founding, an unheard of amount for a new Canadian company, from international backers including Microsoft Corp., Intel Corp., Nvidia Corp., Tencent Holdings Ltd., Fidelity Investments, a Singaporean sovereign wealth fund and venture capital firms. This has been bothering me for a while. Ridiculous sums of money invested purely on name recognition, in particular in 'AI', rather than allocating capital to people who actually at least have a product.

agentofoblivion 6y ago

I don't know anything about this company. But I work at FAANG as an ML scientist and spent about 3 months this year working on a research project that demonstrated big performance improvements of a new tech. It got enough interest that it led to a new project that brings this to production. This has led to countless headaches. The skills needed to solve these challenges are very different. My more academically minded colleagues don't seem to have the intuition for seeing around this corner and understanding what it takes to build something that actually works. This is a long way of saying: if a company is founded by and ran by such academics, I can see how this would be a recipe for disaster when it came to actually building and shipping products.

qeternity 6y ago
Really good insight. When I put engineering job posts up, we get loads of PhD applications...a staggering amount. And all of these people look great on paper. It’s only when you start talking to them off script that you understand a career in academia has radically different incentive pressures than the private sector. We end up passing on most, not because they aren’t brilliant, but because they’re very one dimensional, which is what suits academia.
- musicale 6y ago
  It must be surprising to find "brilliant" people who are apparently incapable of learning how to do new things.
  - concreteblock 6y ago
    I don't think it's fair to characterize such people as "incapable of learning how to do new things" if they're not even being given the opportunity to learn. I'm not saying that the OP should hire these people, or that they would even be good hires. Maybe they don't want to take the risk or time of training up a new employee. It just seems like a bit wierd non-sequitur to draw conclusions on someone's learning capabilities based on their performance in an interview outside their usual domain.

ReDeiPirati 6y ago

Unlike Landing.ai and C3.ai, Element.ai was lacking of a solid go-to-market strategy from day 1.

throwawayeai 6y ago
I worked at Element AI, and that was true from the inside to an extent that was borderline terrifying. On orientation we were told that EAI's strategy was to hire as many smart individuals as possible. There was no focus on delivering an actual product, it was demo after demo of semi-impressive DL models. It makes me sad thinking of all the brilliant colleagues I had that were simply wasting their talent.
- amelius 6y ago
  > It makes me sad thinking of all the brilliant colleagues I had that were simply wasting their talent. At least they were not making people click ads ...
- rfrey 6y ago
  That strategy worked out ok for DeepMind.
  - lostmsu 6y ago
    And OpenAI. So far.
- gumby 6y ago
  This was why jg bought DeepMind. Presumably they hoped lightning would strike twice.
yourapostasy 6y ago
> Unlike Landing.ai and C3.ai... What do you believe the go-to-market strategy is of those two? For C3.ai, my interpretation was they're trying to become the Microsoft of ML, re-packaging the entire ML pipeline into a more consumable developer experience. They seem currently focused more upon the model analytics part of the pipeline than say, training data selection or ETL to ingest raw data (whether to train upon or run in production), or any number of other pieces of the pipeline. Landing.ai appears to be more tightly focusing their messaging on the operational aspects of the ML pipeline, though not so much the modeling part that C3 appears to emphasize. They also seem to very tightly narrow their focus on machine vision ML. I'm probably wildly off though, having had no access to the actual platforms and ever used them in anger.

latenightcoding 6y ago

Anybody familiar with the matter knows if Bengio scaled down his academic duties while raising money for Element AI?

mlthoughts2018 6y ago
He did scale them down, but he forgot to subtract the mean first which is why his duties were biased and the outcome was not efficient.

mlthoughts2018 6y ago

It’s funny to see this around the same time as this other thread where people are going through so much mental gymnastics to avoid obvious conclusions of how horrible it is to work for a startup, https://news.ycombinator.com/item?id=25493646 https://news.ycombinator.com/item?id=25493646

brutus1213 6y ago
If the start up offers market-rate wages, I am not seeing the downside. Job insecurity vs. chance to get more experience/lottery ticket? Seems reasonable .. but then again, I don't work at a startup.
- mlthoughts2018 6y ago
  Start ups don’t offer market rate compensation. Typically salaries will lag by 30% or more compared with even mid-level tech companies, not even considering FAANG at all. That’s just base salary. Most startups don’t pay a bonus, and the equity is usually very poor on an annualized basis, and it’s mostly tied up in options where you have to deal with the strike price and tax issues. A wildly successful compensation outcome for an employee at a startup would be ~75% of a comparable market salary plus a few hundred thousand dollars of post-tax income from equity after 8-10 years, amounting to say $25,000 per year of equity/bonus. At a totally mid range tech company or large company with some technology, you would make 100% of that market rate and probably make $25,000 just in a bonus per year, plus an additional $30k to $50k of RSUs per year, which you don’t have to wait 8-10 years to sell. In an extremely conservative estimate, you’re probably losing $200,000 of post tax equity / bonus income over 8 years by choosing a startup over a mature but run-of-the-mill tech company or other large company that has tech teams. If your market salary is ~ $150k, the startup is probably paying $115k and will give worse raises and promotions. Conservatively that’s another $180k of lost post-tax income over 8 years (35k delta times 8 minus taxes). In total that’s about $400k of lost post-tax income by working at the start up for 8 years, and the alternative I’m comparing to is a very conservative estimate $150k base, $50k equity $25k bonus assuming no stock growth or raises, which is a totally run of the mill offer in large cities even 5 years ago for roles with 3-4 years of experience. And that’s under a huge IF the startup is wildly successful and all those options are actually worth a few hundred thousand after taxes. That’s a rare outcome. They could be worth nearly nothing, and then you’re talking about foregoing around $550k of post tax income over 8 years (225k all in per year minus 115k at a failing startup, per year, x8 then less taxes). Is the high, high risk of leaving $550k on the table worth it for vague promises of “interesting work” that isn’t guaranteed?

Apocryphon 6y ago

So much for Montréal becoming the Silicon Valley for AI. Another Canadian/non-Californian startup bites the dust.

person_of_color 6y ago
Never 4get North
- 908B64B197 6y ago
  The AR glasses?
908B64B197 6y ago
The problem is AI is a tool to build a product. It's not a product in itself. Element AI's product was it's talent (mostly all grads from MILA just next door) and the fact it's one of the few places where you could get as many great devs and deep learning experts in the same room. But as long as folks focus on AI and not building an ecosystem or a product we'll see these acqui-hires.

dvnguyen 6y ago

Wow $200M funding for a startup with no products. Not even sure if they were serious in building a product or just cashing out the AI hype and academic credentials.

claydavisss 6y ago

Looks like someone at ServiceNow owed a VC a favor.