Top Deal: AI for the World of Commerce

Key Stats:

Summary

Commerce.AI has been selected as a “Top Deal” by KingsCrowd. This distinction is reserved for deals selected into the top 10% of our due diligence funnel. If you have questions regarding our deal diligence and selection methodology, please reach out to hello@kingscrowd.com.

Much like the introduction of electricity in the early 20th century, Artificial Intelligence (AI) is proving to be a highly disruptive invention. AI has already found applications in various industries and influenced the way we communicate, work, and shop. Businesses are deploying AI to maintain a competitive advantage. Companies like Amazon and Google are in the forefront of this innovation, deploying AI to disrupt their own competitive environment. Amazon is the ultimate disrupter, and they are utilizing AI to recommend products to customers based on what they have liked or bought. Their AI voice product, Alexa, is a virtual assistant capable of voice interaction, setting alarms, playing audiobooks, and other functions. Meanwhile Google, the household name in Internet searches, is using AI to accumulate all the information available on the Internet to make it readily accessible and to make searches more efficient.

Problem

Research and development for new consumer products is expensive and time consuming for companies. There is a tremendous amount of data on the internet that needs to be quickly sorted and analyzed in order for companies to draw insight and value from it. According to Harvard Business School professor Clayton Christensen, “each year more than 30,000 new consumer products are launched and 80% of them fail because they postpone the hard work of getting ready to market them until too late in the game.”  

Solution

Commerce.AI is a firm that deploys AI, with Deep Learning technology, to sort through product information like texts, comments, reviews, videos, audio files, and images to help retailers and brands understand what customers are saying about products at a granular level. When the AI understands which product features work well, it helps companies understand what their customers are seeking. This information in turns helps companies in building better products, predicting recalls, or minimizing returns. By analyzing such data, Commerce AI has the tools to provide improvement suggestions for many segments in a company, from merchandising, branding, and product management to digital marketing, packaging and market research. 

Commerce.AI’s website is very well designed and simple, yet still provides important information for clients to understand the value of the service. There are also various use cases, showing specific results the technology can provide, like comparing products across brands, tracking competition, detecting abnormal customer behavior, or analyzing store performance. These details could help companies warm up to the idea of replacing existing manual processes or beginning a new practice to get them ahead of the competition. 

Market

According to Grand View Research Inc, the global artificial Intelligence market size is expected to reach $390.9 billion by 2025 and to grow at a CAGR of 46.2% from 2019 to 2025. They state that AI is a revolutionary technological development, and its integration across a host of applications is one of the key factors driving this market. The market has evolved due to a massive amount of data that needs to be compiled and analyzed. 

Commerce.AI is in the Deep Learning segment of the Artificial Intelligence market, which was worth $2.28 Billion in 2017 and is expected to reach $18.16 Billion by 2023 at a CAGR of 41.7% from 2018 to 2023. In the following diagram, McKinsey estimates AI techniques have the potential to create between $3.5T and $5.8T in value annually across nine business functions in 19 industries, of which Retail looks to benefit the most.

From a public markets perspective, analyzing the popular AI exchange-traded fund (ETF) displays the tremendous opportunities and excitement amongst investors in this space. An ETF is traded on the exchange, contains baskets of different types of securities (E.g. Stocks, bonds, commodities), and offers the investor exposure to a specific sector or index.

The Roboglobal Artificial Index ETF (THNQ) has had an incredible run as we can see from the chart.   The index is primarily comprised of companies which are deploying AI to enhance their user experience. It is not surprising that we see Amazon and Alphabet on this list, as they are leaning on AI to drive their growth. Stock market investors are gravitating from slower growth to higher growth companies that are deploying the latest technologies and assigning higher valuation to them, such as AMZN (recent earnings reflect 20% YoY revenue growth in 2018-19) and Wix (29% YoY revenue growth). Over time, as pure AI-based private companies like Commerce.AI or Genesis AI go public, new AI indices and ETFs will develop with more segmented plays.  

Managment

Commerce.AI is led by a talented team of Stanford and MIT graduates, data scientists, and an experienced entrepreneur. CEO Andy Pandharikar is a serial entrepreneur whose previous startup Myntra, acquired by Flipkart group, was later sold to Walmart for $16B. Back in 2016, Andy used his understanding of how vital the implementation of AI could be in this space, and he pitched Commerce.AI to Walmart.

Lu Feng is a Co-Founder and the Head of Data Science. She has a strong background, having a Phd from MIT as well as a long stint there as a Researcher. 

Goncalo Gil is the Co-Founder and Head of AI for Commerce.AI. Before finishing his Ph.D from Stanford, Goncalo was a successful tech entrepreneur. He has a Master’s degree in Aerospace Engineering and a Doctorate in Philosophy from Stanford University.

Nate Orlin is the Co-founder of Commerce.AI and Head of Engineering. He is a Stanford graduate and spent four years at IBM in work related to IBM Watson. He has a deep passion for technology systems and architecture. Before that, he worked at Cisco with Pandiharikar.

This team has worked together before and is determined to make AI work for humans. The management team has a strong track record of success, excellence, and expertise in the AI space and can likely execute on their vision.

Why We Like it

• Strong Management: Collectively the Commerce.AI team is distinguished and includes a serial entrepreneur, data scientists, and Master’s degrees at some prestigious universities such as MIT and Stanford. Their work experience in the corporate world includes IBM Watson and Flipkart (now Walmart). To reiterate, this team has worked well together in the past and likely will continue to do so. 

• Proven Customer Base: In the face of increasing competition, Commerce.AI has managed to carve out a niche and been able to differentiate their product, acquiring some notable customers in the process. Their paying customers include an elite list of Fortune 500 companies including Walmart, Coca-Cola, Unilever, Chanel, Netgear, USPS, Cisco, and more. 

• Incremental Growth in Valuation: Commerce.AI conducted a previous funding round on SeedInvest at a valuation of $15M and is presently doing one at StartEngine which represents a growth of 60% in valuation. In their prior round, they sought to raise $100,000 but ended up raising over $700,000. The trend and trajectory of their business suggests that this will continue to accelerate as they continue to scale. This statement from Andy tends to support that: “since the last round, we have had 890 percent growth in revenue and achieved great customer success.”

• Exit Opportunities: AI is a great industry for exit opportunities and could yield great early returns. Previous round investors for Commerce.AI include DeNA, Plug & Play Ventures, and the SI Selections Fund. An exit plan is certainly possible, which could be a sale to one of their existing customers like Walmart. An IPO is also feasible, as this company has strong revenues and an existing customer base.

The Rating: Top Deal

After evaluating the company, we are assigning a “Top Deal” rating to it as the firm is focused and firing on all cylinders. 

The following is a compelling argument which further solidifies our rating. AI is a nascent industry with few or no pure publicly traded plays. The current valuation of Commerce.AI is $26 million in this round, which is reasonable, given their prior growth in sales and revenues. Per Andy Pandharikar, “revenue more than doubled (146% Y/Y) in 2019 compared to 48% in 2018/17.”  To put valuations in perspective, consider the following three small cap publicly traded companies deploying AI. 

Comparing the valuation levels of these companies, a $250M-$300M future value for Commerce.AI is quite possible. It is not often that there is the opportunity to buy an established company at a startup valuation.

Commerce.AI has tremendous upside. They are led by a visionary CEO and a strong team with experience in a space that is growing rapidly. They also bring a proven customer base, strong revenues,  and possible exit opportunities.  

Commerce.AI, used already by Fortune 500 companies, is the hope that other retail companies can still compete with Amazon. There is no reason why many other companies will not follow Walmart and Coca Cola in utilizing this technology. Commerce.AI is a low risk/high return opportunity, which any investor should consider.