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Foreign buyers feast on Canadian AI startups as another domestic firm sells out Add to ...

Another Canadian artificial-intelligence startup has made a quick exit by selling for a relatively modest sum to a U.S. buyer.

Toronto-based Outside Intelligence Inc. (better known as OutsideIQ), a seven-year-old provider of AI-enabled software to help financial institutions perform due diligence and compliance tasks, has been snapped up by New York-based Exiger LLC, the Canadian firm’s largest outside investor. Terms were not disclosed but a source familiar with the deal said it valued OutsideIQ at $30-million (Canadian).

OutsideIQ CEO Dan Adamson, a former Microsoft search expert, said he decided to sell after failing to raise $15-million (U.S.) in a private financing transaction last year, blaming a cool reception by Canadian investors. While the firm has established a toehold in dozens of financial institutions globally, Mr. Adamson said widescale adoption “takes time and you have to have patient investors. We are beginning to see global banks use our technology in a big way, but that was after several years. … A lot of investors aren’t willing to endure that whole journey.”

Canada has been gaining global attention as home to some of the world’s leading AI experts, namely the University of Toronto’s Geoff Hinton, Yoshua Bengio at University of Montreal and Rich Sutton at University of Alberta.

Thanks to recent breakthroughs, AI is now considered a central technology trend globally and has drawn a torrent of investment by some of the world’s leading technology and industrial companies. Researchers from U of T and the University of British Columbia now hold senior AI positions with Apple, Uber, Microsoft and Elon Musk’s OpenAI. Silicon Valley giants along with industrial giants including General Electric have also bought up AI startups.

That, in turn, has some worried that Canada’s fertile AI ecosystem, particularly in Toronto and Montreal, could be quickly picked over by savvy foreign buyers in search of scientists and intellectual property before any domestic firms can grow into giants. In recent months, AI firms Meta Inc. of Toronto and Montreal-based Maluuba have been purchased by by the Chan Zuckerberg Initiative and Microsoft, respectively. Microsoft and Google have actively funded Canadian AI initiatives including Toronto’s Vector Institute, co-created by Mr. Hinton, who has been employed by Google since selling his AI startup DNNresearch to the search giant in 2013.

“We’re seeing a lot of early-stage AI companies selling because there are a lot of buyers” offering premiums, said Steve Irvine, an ex-Facebook executive who moved back to Toronto to start the AI firm Integrate.ai.

In addition, recent research by Waterloo, Ont. patent lawyer Jim Hinton shows that despite Canada’s early lead in the branch of AI known as machine learning, the amount of related patent applications – the cornerstone of wealth creation in the digital economy – from this country has been dwarfed by the U.S. tech giants.

Against that backdrop, other factors likely limited OutsideIQ’s options. One Canadian investor that passed last year said its market seemed “limited” given “corporate spend on this category.” Exiger’s Canadian-born CEO Michael Beber – a veteran entrepreneur who co-founded Canadian forensic accounting firm Lindquist Avey – also acknowledged outside investors might have been hesitant given OutsideIQ’s reliance on Exiger.

The five-year-old New York firm, which sells risk-mitigation and compliance tools to large enterprise and government, had a one-third stake in OutsideIQ dating to its original investment in 2013, as well as board representation. It also effectively acted as OutsideIQ’s sales agent. He added fundraising had become “a distraction” for OutsideIQ, suggesting Mr. Adamson’s skills as a technologist were better suited to the lab. “We need Dan’s genius applying to product every day, and we [at Exiger] are business builders,” Mr. Beber said.

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Follow on Twitter: @SeanSilcoff

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