The Hive Closes $26.5M Third Fund to Create More A.I. Startups
Some people may be horrified by the awesome powers of artificial intelligence, fearing that even their own skilled jobs will be taken over by machines. Others, faced with a pile of work just to keep a business humming along smoothly, might secretly yearn for robotic reinforcements.
For those people, help may be on the way from The Hive, a combination startup co-creation studio and venture investment firm in downtown Palo Alto, CA. The Hive just secured $26.5 million for its third fund (The Hive III), and it plans to concentrate on nurturing the development of A.I.-enhanced tools to streamline and automate business operations, from customer relations to cybersecurity. The firm has already been investing in a related range of technologies, including edge computing, biometrics, and blockchain transactions.
At least seven startups will be formed under this latest fund, and two of them have already been launched from The Hive’s enclave on University Avenue, near Stanford University. They are:
—Decision Engines, which says its bots can analyze a company’s procedures in areas such as decision-making and risk assessment, then automate those processes, and keep them running “with minimal human intervention.”
—Live Objects offers an A.I.-powered system that can optimize a company’s business processes, and automatically modify them to conform with the changing goals of the leadership team.
The Hive itself has been refining its routinized process for cranking out startups to fill niches that it sees as lucrative opportunities. Co-founded in 2012 by managing director T.M. Ravi, a former tech executive and startup founder, and venture capitalist Sumant Mandal, The Hive cooks up plans for new companies by collaborating with entrepreneurs and potential partners and customers. The Hive, as an originator of the startup idea, co-creates the company from scratch, and recruits its other founders. All founders, including The Hive, receive equity stakes, Ravi said in an e-mail exchange with Xconomy.
The Hive’s funds, now totaling $56.5 million, have supported 24 companies, and six have been acquired so far. In the firm’s first exit, Pinterest bought recommendation engine Kosei in early 2015, six months after the startup was founded. Another startup backed by The Hive, cybersecurity company E8 Security, was acquired by Web-based workspace company VMware (NYSE: VMW) on March 28.
Ravi (pictured) says The Hive will swing for the fences with its third fund by changing its mix of investments and supporting fewer young companies.
Under its $22 million second fund, which was raised in 2015, The Hive funded 16 startups. The firm co-created some of these, and made initial investments of about $2 million in them. It also supported early-stage startups that had already been formed, investing around $250,000 each. But plans for the third fund involve backing about seven startups at the higher investment levels.
“As we have matured and have fine-tuned our co-creation process in The Hive III, we will not be doing many small seed investments,” Ravi says. “This is important for The Hive also because with the co-creations we can actively curate companies for billion dollar outcomes.”
The investors in The Hive III fund include Verizon Ventures, Software AG, GE, Rockwell Automation, and March Capital Partners, along with individual investors. Some of these financial backers are among the businesses that have collaborated with The Hive to co-create and launch startups, by acting as early customers, marketing partners, and follow-on investors, Ravi says.
“As an example, GE has helped co-create a startup with The Hive (FogHorn), it has invested in multiple startups of The Hive (FogHorn and one that has not yet been disclosed) and has also acquired a company of The Hive (Nurego),” Ravi says. “TruU is an example of a startup co-created with a customer, eBay.”
Mountain View, CA-based FogHorn Systems is an edge intelligence software company focused on the Internet of Things in industrial and commercial operations.
The Hive’s four other exits, aside from Kosei and E8 Security:
In 2017, GE Digital acquired industrial business operations platform Nurego, and Cisco Systems (NASDAQ: CSCO) bought machine learning startup Perspica. In 2016, Monster Worldwide bought mobile job discovery app Jobr; and in 2015, Rakuten Marketing acquired mobile marketing company Deep Forest Media.
For its third fund, The Hive is pursuing a vision of disruptive new technologies that transform businesses into A.I.-based “autonomous enterprises,” Ravi said in the funding announcement. Applications of blockchain, and the industrial Internet of Things, are key interests, the firm says.
Although Silicon Valley companies have to compete hard for much-sought A.I. researchers and technologists, Ravi says The Hive’s unique focus on A.I. since 2012, and its in-house experts that help nurture startups, give the firm an edge in recruiting.
“The Hive has deep technology expertise in machine learning, deep learning, NLP/NLU (natural language processing and natural language understanding), computer vision, and blockchain, and (their) applications and use cases in the enterprise,” Ravi told Xconomy. “The Hive’s reputation in the A.I. community, and its unique ability to help A.I. experts start their own companies, help it compete for A.I. talent with the major players in attracting A.I. talent.”
Photo of T.M. Ravi courtesy of The Hive