Helsinki-based AI lab Silo AI hit the headlines this summer when Silicon Valley semiconductor company AMD bought it in a $665m cash deal — the biggest AI acquisition in Europe to date.
And it’s not the only company that AMD’s snapped up recently. In August, the company acquired New Jersey-based server maker ZT Systems for $4.9bn in cash and stock, as the chip maker expands its portfolio of AI hardware and software to try and go head-to-head with Nvidia.
But how does a formerly bootstrapped AI startup from Finland play a role in the competition between giants?
Sifted met up with Silo AI’s founder Peter Sarlin at the office in Stockholm to find out.
Talent scurry
Silo AI was founded in 2017, to help businesses by building AI solutions for them through strategic partnerships. Since then the startup has launched its large language model (LLM) focused on Nordic languages as well as an end-to-end platform for AI tools and infrastructure.
But perhaps more important than its products, Silo AI has the people. At the time of its acquisition, half of the startup’s 300 employees had a PhD degree.
The talent war for AI experts has been raging for a while and many of the acquisitions in the field have tended to be “acquihires” (acquisitions to gain a team) rather than business acquisitions, says Sarlin.
Swedish startup Peltarion, an AI platform for companies to create, train and deploy AI models that was backed by EQT Ventures and the Wallenberg family, was in 2022 sold for an undisclosed amount to the mobile games company King, the maker of Candy Crush.
Sarlin points to deals like Microsoft’s acquisition of Inflection AI, founded by Mustafa Suleyman, former head of applied AI at DeepMind as an acqihire, as well as Amazon’s licensing deal with AI agents startup Adept, a startup developing AI-powered “agents” which meant that Adept’s cofounders and portions of its team have joined the e-commerce giant. Google’s hiring of Character AI’s cofounders and other employees in a deal for nonexclusive rights to use Character represents another way that the large tech companies are getting access to great AI brains.
But becoming part of AMD is not the same, according to Sarlin.
“What we can do together with AMD, and with the resources available, is much more than what we could do alone. And that’s a very genuine feeling that I’ve had since the very, very first discussions,” he tells Sifted.
From bootstrapped to a minority PE investment
Silo AI was founded by six tech veterans — Sarlin, Tero Ojanperä, Johan Kronberg, Juha Hulkko, Kaj-Mikael Björk and Ville Hulkko in Helsinki — some of them with capital saved from previous exits.
“As a professor, I’d been running a small consultancy and venture builder since 2011 as an extended arm for our research group. So it wasn’t entirely new. We had been already bringing cutting-edge research to the industry for some years,” Sarlin says.
Some of that early work was applying machine learning solutions to financial stability surveillance for central banks, the European Central Bank was one of them. After that, several other high-profile banks became customers, including the IMF and Deutsche Bundesbank.
“That’s where we started. It was a bit of a flying start in the sense that we already had a client base and a team, since my research group joined immediately,” Sarlin adds.
Although machine learning was hot in 2017, Silo AI wasn’t able to raise venture capital, instead the founders put in their savings to keep the company running while it was loss-making for the first few years.
The market was immature, but the problem wasn’t that no one was talking about artificial intelligence — but rather the opposite, according to Sarlin.
Too hot and hyped
“The most challenging part was that we were focusing on a really hot and hyped market. Everyone was interested in talking about AI. But few actually knew how they should apply the technology and ensure that they created enough value so that it made sense for them to invest in it,” Sarlin says.
In the beginning, Silo tried to be market-driven but since the market didn’t understand the technology, it was difficult for the company to choose which path to go down.
“I would say that the main challenge was that, in an immature market, it was pulling us in directions where there wasn’t that much value on the table,” says Sarlin. “I think it took until early 2019 until we really found the focus and made the decisions on where to play.”
The AI hype of 2017 and 2018 was similar to the one we’ve encountered following the release of ChatGPT, albeit a bit less intense.
“At these times of hype, like now and also then, they’ve been the most difficult times for us,” he says.
But that hasn’t stopped Silo from teaming up with some of the most hyped named in the sector. In June, it announced a partnership with Paris startup Mistral, to develop AI solutions together.
Becoming part of AMD
When Sifted sat down with Sarlin for the first time in 2022, Silo was still a bootstrapped startup but had still managed to employ around 240 people — with a majority of them with a PhD.
Since 2019, Silo has focused on creating value by incorporating AI into almost every existing digital product — whether it is building smart cities, smart devices, autonomous vehicles or industry 4.0.
“We basically have a partnership model — we use our platform, our infrastructure and tooling, and then we build joint teams with the customer,” Sarlin says. “With a customer like Rolls Royce or Philips, we build a joint team where we have AI scientists from Silo and their experts with specific software engineering, integration and domain expertise.”
Between 2019 and 2022, Silo was profitable with an average 100% revenue growth for four consecutive years – in 2021, it reported €12.3m in revenue. In 2022, revenue increased to €14.3m with €1.5m in losses, due to heavy investments in geographical expansion. That same year, Silo raised its first external capital — an undisclosed sum from Swedish PE investment firm Altor, founded by Harald Mix — aiming to “build a European flagship AI company,” Sarlin said at the time.
In the year that followed, Silo AI acquired the Wallenberg-founded Combient AI’s subsidiary Combient Mix which gave it access to another 50 highly skilled staff as well as a customer base with large industrial players in Scandinavia, including Atlas Copco, Electrolux, Ericsson, FAM, Investor, LKAB, Saab, SEB, Sigma, SKF and Stora Enso.
Silo AI also acquired Finnish technology consultancy FINNOPT in 2021 and Dutch machine learning company Machine2Learn in 2023.
In similar ways to how Deepmind has created value in the UK ecosystem, I believe there is an opportunity to do the same in Europe
With the news about AMD acquiring Silo AI in July 2024, the all-cash deal of $665m sounds small in comparison to the VC raises of some AI companies, like London-based self-driving car software company Wayve, which raised $1bn this year.
But as Sarlin points out, you cannot compare apples with pears.
“As Handelsblatt has noted, it’s the largest AI acquisition ever in Europe and I think it is the largest acquisition in Finland this year,” he points out. “I think there aren’t many stakeholders that wouldn’t be happy with this outcome.”
“But money has not been everything”, Sarlin says. “Silo has always been self-sufficient, and we are not a VC-funded company, and we didn’t set up to raise capital before we started operations.”
He cannot talk much about the merger with AMD but says that as a European company, he believes the deal is a “tremendous opportunity for the European ecosystem”.
“There is a lot of value we can create with AMD and for AMD customers but since we are still going to be headquartered in Finland and keep our offices in Europe, our European presence will continue. In similar ways to how Deepmind has created value in the UK ecosystem, I believe there is an opportunity to do the same in Europe.”
Read the orginal article: https://sifted.eu/articles/silo-ai-bootstrapped-cash-acquisition/
