How to drop college and build a $7 billion startup
Example of 24-year-old founder of Scale AI
When Alexandr Wang founded Scale AI in 2016 at age 19, his company’s name was something of a joke. After all, with only three employees, Scale had yet to scale up.
Now, the company has around 300 employees and is worth $7.3 billion, making Wang the CEO of one of the biggest AI companies in Silicon Valley at the age of 24. After dropping out of MIT and joining Y Combinator’s spring 2016 batch, Wang didn’t know what kind of startup he was going to create. According to the interview for B2, he had a breakthrough moment: companies wanted to integrate machine learning, but most didn’t have the tools or resources that Big Tech did for their in-house AI projects. That’s when Wang hit upon the idea for Scale, which makes AI infrastructure for developers to build from.
What actually Scale does?
Scale AI accelerates the development of AI applications by helping machine learning teams generate high-quality ground truth data. The start-up specialises in data labelling, which helps companies like Lyft, OpenAI, Zoox, Pinterest, and Airbnb focus on product development rather than labelling and identifying data.
Scale AI has also developed a platform — Nucleus, which helps companies manage their data and makes recommendations for improving data quality before submitting it to Scale AI for labelling. The platform also has ready-made solutions in the field of autonomous cars, drones, content and language, document processing, retail and e-commerce, robotics and government.
How is Scale AI doing now?
According to the CEO forecast, the company could reach $ 100 million in revenues this year. Among Scale AI clients there are Toyota, General Motors, U.S Airforce Department, PayPal, Square, Samsung and Standard Cognition. For autonomous vehicles, Toyota uses Scale product, which helped to improve Toyota’s annotation throughput by 10X in a matter of weeks.
Among investors, you can find Y Combinator, Tiger Global, Spark Capital, Index Ventures, Accel and Durable Capital. Scale AI plans to use attracted capital for further development of existing products and possible enlargement into other industries like healthcare.
Market overview
The global market for artificial intelligence was estimated at $ 62.35 billion in 2020 and is expected to grow at a compound annual growth rate (CAGR) of 40.2% from 2021 to 2028. At this growth rate, the market will be valued at nearly a trillion US dollars by 2028.
Due to the large market size and promising technology, venture capital is also showing great interest in this area. According to PitchBook, there have been 442 deals worth $11.65 billion in financing for artificial intelligence companies in the United States since the beginning of 2021.
Scale AI is the largest artificial intelligence startup in the United States. The main competitors are Hive and Labelbox. While Hive only deals with data labelling, Labelbox, like Scale AI, has developed a data management platform for its clients, which is very rare in the industry. Scale has the most capital for labelling high-quality data, which gives the advantage of reaching the largest customers in the niche.
Potential ROI
Most likely scenario (80%):
- Based on recent hires of top management — the company will become public through SPAC or IPO in 2–3 years. Based on no alternatives on a public market the valuation has an opportunity to grow from 150% to %200 before the public listing.
Less likely scenario (20%):
- Acquisition by one of the big tech companies showing activity in AI-related startups M&A: Google, Microsoft, and Apple. In this case, the acquisition will be made approximately with a 100% — %150 premium from the current valuation.
Risks
Data processing and storage legislation can complicate the development of artificial intelligence technology in various fields, where Scale AI is operating.
As the leader of the data labelling market, the company is at risk of losing its lead amid growing competition from smaller startups.
Download Raison App and find private equity companies on our marketplace!
