Is the AI bubble bursting? Naturally, most eyes are on the movements of the world’s biggest tech firms – the OpenAIs, the Microsofts, the Nvidias. These are, after all, where a large share of AI investment has been deployed. But for the earliest tell-tale signs, it’s worth looking a lot further down the food chain.
Big AI firms burn through cash much faster, but they are also sitting on plenty of unused capital and have investors with deep pockets. Some of the smaller AI startups, on the other hand, are on much shakier ground.
They are confronted with two main problems. First, they were the beneficiaries of a huge splurge of speculative VC and angel investor money a couple of years ago. When AI hype was at its peak, investors adopted a “spray and pray” approach: throw money at anything with AI in the name, and see what sticks. Due diligence went out the window.
Two years on, said startups are still well away from hitting profitability, but investors need much more persuasion to part with their cash. It’s survival of the fittest.
Second, the big AI companies have become so big – and so broad in their capabilities – that they have cannibalised many of the product offerings of their smaller peers. Startup founders are either hoping they’ll be snapped up by one of the big boys – or praying that they won’t move into their own niche line of services.
We’re already seeing evidence of this on the ground. As I revealed last month, London-based legal AI firm Robin, which raised around $50m last year, is now in a desperate search for a buyer so it can keep the lights on. The firm is also facing a winding up petition from tax collector HMRC.
Another company that’s caught my eye of late is London-listed small-cap Cykel AI, which has seen its shares fall around 90 per cent since the start of the year. The firm joined the stock market in late 2023 and promised to offer AI workers for hire – realistic looking (and sounding) AI sales and recruitment agents who could do the same work as humans for much less.
Sounds promising – but in its latest results the firm made a loss of £1.2m for the six months to July. Its turnover during that period? £4,107 (not a typo). Last week Cykel’s chairman resigned. He had only been in the job two months, before the previous chair resigned. Which hardly inspires confidence.
There are doubtless more examples of AI startups who are finding the going tough. OpenAI and co won’t flinch if the small players go bust, but they could prove the canary in the coal mine, or, if you’ll forgive me, a sign of the end of the AI hype cykel.
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How is the government’s red tape cutting plan going?
Rachel Reeves had set her eyes on “tearing down” red tape in a bid to get the economy firing on all cylinders.
To show she was putting her money where her mouth is, at the start of the year the Chancellor sacked the head of the competition regulator, Marcus Bokkerink, replacing him with the former boss of Amazon UK.
How is the mission going so far? For one thing, economists have poured cold water on the idea that current deregulation plans will deliver any tangible growth before the end of this parliament.
“The big problem is that, even if you are going to get higher growth through deregulation, it takes time for that higher growth to kick in,” Professor Stephen Millard, Deputy Director of the National Institute for Social and Economic Research, said last week.
“I’d be very surprised if you saw it in the growth numbers within the next five years.”
For another, as I revealed this week, the head of the government’s AI watchdog, the AI Security Institute, has decided to swap the headquarters of his own tech investment firm from the UK to Estonia, which the firm told me was “most aligned with [its] long-term success.” Hardly a vote of confidence.
Citing the story in an appearance before the House of Lords Industry and Regulators Committee, Policy Exchange research fellow Ben Ramanauskas said the move “says a lot about the state of regulation in the UK.”
Ramanauskas argued the government should “bring things in house so there’s actually proper accountability for the decisions that are made and their consequences.”
Without that step, he said, government ministers are left only with “blunt tools” of oversight like sacking the head of a watchdog from time to time.
It’s also hard to square the government’s deregulation agenda with all the new pieces of regulation it is introducing in the coming months, such as on employment rights and a flurry of new rules in the rental market.
It would not surprise me if, despite sending out the right signals, the regulatory burden imposed by the government ended up higher, not lower, by the end of the Parliament.