How Element AI Defrauded Investors
At the Last Futurist we cover AI and a lot of related startups. One so-called AI startup, Element AI, was recently acquired by ServiceNow. Like so many startups that use “AI” in their namesake, it was pretty much a company without a business model or unique value proposition.
Founded by AI pioneers and backed by some of the world’s biggest AI companies — it raised hundreds of millions of dollars from the likes of Microsoft, Intel, Nvidia and Tencent. But it had an exit way below its apparent market valuation compared to the amount raised. Founded in 2016, that’s not an exit, it’s what we call a scam here in Montreal. Fake it till you make it? In 2020? Seriously?
The Canadian Government, the Provincial Government, even the local pension plan invested in this! While Toronto and Montreal have a lot of academic AI talent, this is not an ethical use of that name reputation. We have to call it what it is: a total PR stunt. A quick exit, the kind of startup behavior that erodes trust for the Montreal and Quebec startup ecosystem of fake innovation.
Element AI Inc., the Montreal startup that raised more than US$250-million in hopes of building a Canadian artificial intelligence giant, is being sold for barely $400 million. It’s not right, it’s frankly an abuse of the name of “AI” and its over-promising marketing proves it. It was painful to watch the last four years of Element AI, because you knew what would happen.
The Rise of AI Hubs
The deal, announced Monday, marks the end of a tumultuous ride for four-year-old Element AI, which was championed at home, whose “exit” was nothing more than an aqua-hire for ServiceNow. For Montreal startups, this sort of scammy entrepneurship is nothing new. Montreal is essentially a cheap labor talent pool for AI recent grads and an “AI-hub” for American companies to exploit.
The brain drain is real in Montreal, even as Toronto is becoming one of the hot beds of technology and AI startups in the world. Its like the winners vs. the losers of Canadian technology innovation sector.
The Quebec government, which committed US$25-million as part of last year’s US$151.4-million venture financing backed by the Caisse de dépôt et placement du Québec and McKinsey & Co, were totally defrauded. When the PR is off the charts and the business model is lacking, it’s a red flag. Was the Canadian media honest enough to call it what it was?
The Dark side of AI Hype
Yoshua Bengio’s reputation was used in vain. For some context, Element AI was valued at between $600 million and $700 million when it last raised money, $151 million (or CAD $200 million at the time) in September 2019. So why did it sell for barley more than half this valuation? What went wrong is what we should be asking in late 2020. As consolidation occurs, the pandemic is not good to many tech startups, and the mismanagement of this company is very clear.
Heralded by the media as a Canadian leader in AI, Element AI was destined for failure and to make a quick buck for the founders without generating a real product. A spokesperson confirmed that ServiceNow is making a full acquisition and will retain most of Element AI’s technical talent, including AI scientists and practitioners, but that it will be winding down its existing business after integrating what it wants and needs.
What is the moral of the story for so called AI startups? Most of them, like crypto startups, don’t even have a legit unique value proposition or a chance at being profitable. That’s the honest truth the media somehow fails to provide.
The Startups Engineered for the Quick Hustle
One look at Element AI’s website or Instagram and you can tell it was a fraudulent company. So will Montreal keep doing this? Or can we generate legit AI startups one day with our considerable pool of academic talent in the domain? While investors are being made whole, Element AI employees aren’t so lucky: An undisclosed number received termination notices within hours of the deal’s announcement.
You pink slip the employees, and the co-founders walk away with a hefty profit. It’s the classic scam of Canadian entrepneurship, and the buzz word of AI is further abused. This is not real innovation, but shady businesses at work. You can always count on Microsoft to invest in “AI for Good” projects, like clockwork.
It’s a disappointing outcome for a company that burst onto the Canadian tech scene like few others, promising to deliver AI-powered operational improvements to a range of industries and anchor a thriving domestic AI sector. They secured $5 million from the Federal Government and the usual Quebec banks, who do not seem to do their due diligence. And what are we left with?
The Montreal-based firm that creates artificial intelligence solutions for large organizations clearly was not meant to be profitable, ever. “Our focus with this acquisition is to gain technical talent and AI capabilities,” the spokesperson said.
The Canadian Brain Drain in AI is Disappointing
Yet another American company buying out the “brain drain” of Montreal, once a respectable city for startups and destined for mediocrity in the 2020s due to restrictive language and business regulations dooming the local economy and insisting that a massive brain drain of our talent continues in the province of Quebec.
The Global and Mail, La Presse, TechCrunch – so many media publications were so very kind to Element AI. So can we take the big AI pioneer names seriously any longer? What say you, YB? Last but not least, ServiceNow will start re-platforming some of Element AI’s capabilities, as if this even mattered.
AI talent is cheap in Canada, and the Government seems to insist on exporting our talent by such bad investments as this. This is not an ethical scenario by all parties involved.
Element AI became the self-appointed representative of Canada’s AI sector, lobbying politicians and officials, securing $5-million in federal aid and landing photo ops with Prime Minister Justin Trudeau. Your basic Montreal startup-scam. For how much longer will this sort of fake innovation continue, this exploitation of the buzz-word AI?
The Quebec Corruption Story in Startups Continues
“Element AI’s vision has always been to redefine how companies use AI to help people work smarter,” said Element AI founder and chief executive Jean‑Francois Gagne in a statement. One wonder how much these co-founders walk away with, along with all these empty words and false promises. Montreal is not known for a viable startup ecosystem. Per capita in Canada, it fails badly and here is yet another example of the worst kind.
ServiceNow has been around since 2004 and has a market cap of over $100 Billion dollars. They can afford some of this expensive payroll. All too often American companies like to make AI Hubs out of Montreal or Toronto for their own benefit.
It invested heavily in hype and marketing – Element AI had its own brand guru, rare for an early-stage company – and earned glowing media coverage. But how legit is Betakit‘s media coverage? There is the smell of corruption here, and it’s not surprising, this is Quebec.
Element AI’s ace was Yoshua Bengio, the University of Montreal professor known as a godfather of “deep learning,” the foundational science behind today’s AI revolution. He co-founded the startup in 2016 with Mr. Gagné, Mr. Gagné’s wife, Anne Martel, the chief administrative officer, financier Jean-Sébastien Cournoyer and two local technologists. So who are these people and why did they scam even our pension fund? If you can read French.
Nine months after its founding, Element AI raised US$102-million in venture capital. You knew it was too good to be true, and the sad premature ending is even heralded as a “success story” in some Montreal circles. Yes, what a successful startup scam it was.
Meanwhile with tough French language restrictions, Montreal’s startup scene is dying. Wake up! More cash arrived last year from the Quebec government, pension fund Caisse de depot et placement du Quebec, and McKinsey and Company. We are so quick to fund something with “AI” in the brand name and some hot-shot academics. But this is a massive failure. Let’s not be so patriotic. We need to be clear.
The Legacy of Element AI
AI should not be a gimmick or profit a few at the expense of investors or real startups. This only damages the reputation of Canadian startups and Montreal in particular. Element AI will be remembered as a joke of Canadian innovation, a story of corruption and incredulous dealings.
Element AI was always a very ambitious concept for a startup. Dr. Yoshua Bengio, winner of the 2018 Turing Award, but that ambition was clearly led astray by a bunch of co-founders who had no idea what they were doing.
Element AI went on a hiring spree to establish what the founders called “supercredibility,” recruiting top AI talent in Canada and abroad. It opened global offices, including a British operation that did pro bono work to deliver “AI for good.” Not surprisingly Microsoft invested in them, with their own “AI for Good” branding. Quebec, that place known for “supercred” startups? What a laughable ecosystem of technology startups.
The investors handed over $200 million in a Series B round of funding. The Quebec Government is just grateful they broke even on this. It makes Justin Trudeau, the Prime Minister, look like a poster child for all that is wrong with Canadian innovation, prone to ethical lapses and giving into lobbying.
The two companies will have to wait for approvals before their deal can close, but expect that to happen in early 2021. What does this do to the reputation of the institution where Dr. Yoshua Bengio works, one has to wonder, in the field of AI? Toronto took the mantle from Montreal in AI talent a long time ago.
Their idea was to build AI services for businesses that were not tech companies in their DNA, but would still very much need to tap into the innovations of the tech world. That’s an abuse of the term “AI” if I ever saw one. In short, they had no real business model.
Parting Words to Another AI Scam
That is the story of Montreal startups, they are mostly exit scams, and everyone in 2021 knows this. In addition to its four (sometimes fiercely competitive) investors, other backers included the likes of McKinsey. Did investors do their due diligence? It makes them look bad to have so readily given in to empty hype and fake promises. AI should not be just a meme or a moniker, it needs to be more than that.
You aren’t entrepreneurs, my friends, you have committed fraud. But there will be no accountability for your kind. No regulation. Just your typical founders with dollar signs in their eyes, and dark marketing in their hearts. There is such a thing as ethics in AI, but what would Montreal know about it? The AI for Good movement is for the most part a sham. O’ starstruck co-founders, we know your real game.
I understand that America has failed in antitrust regulation, and I also understand that Canada fails to regulate its startups appropriately, the few that manifest. But I crave some positive innovation stories, give me something real to talk about, guys? Enough of the Silicon Valley pump-and-dump arrogance. Give me real AI entrepreneurship stories. Give me companies I can be proud of that doesn’t promise you the Moon while delivering an easy exit without a viable product.
Where is the honesty in the AI for Good movement in 2020? Hold the Press, it’s a new milestone for Element AI. Element AI has always been on a mission to help more organizations harness the power of AI and to reinvent how humans and machines collaborate. It turns out AI human hybrid teams are also better at defrauding investors.