Element AI to be acquired by ServiceNow

Montrêal-based Element AI is set to be acquired by California software company ServiceNow.

ServiceNow announced the deal Monday, noting it has signed an agreement to acquire Element AI and expects it to be completed in early 2021.

Despite being seen as a leader in the Canadian AI sector, Element AI faced difficulties getting products to market.

Terms of the acquisition have not been disclosed. However, The Globe and Mail reports that Element AI sold for less than $500 million USD. This would place the purchase price well below the estimated valuation that the Montréal startup was said to have after its $200 million CAD Series B round in September 2019.

Element AI was founded in 2016 by CEO Jean-Francois Gagné, Anne Martel, Nicolas Chapados, Jean-Sebastien Cournoyer, Philippe Beaudoin, and godfather of AI Yoshua Bengio. It has raised a total of $340 million CAD ($257 million USD) to date, drawing the attention of investors like the Government of Quebec, pension fund Caisse de dépôt et placement du Québec (CDPQ), McKinsey & Company, DCVC (Data Collective), and Hanwha Asset Management.

In 2017, the startup raised what was then a historic $137.5 million Series A funding round from a group of notable investors including Intel, Microsoft, National Bank of Canada, Development Bank of Canada (BDC), NVIDIA, and Real Ventures. In December 2018, Element AI received a $5 million loan from the federal government through the Quebec Economic Development Program.

Its $200 million raise marked one of the largest venture capital rounds in Canadian history. At its height, Element AI had more than 500 employees, including 100 PhDs.

RELATED: Element AI CEO says “I’m not leaving,” shares commercialization challenges

Element AI positioned itself as a global leader in AI, helping to further Quebec’s sector and working with the federal government and global organizations to promote ethical AI policies on an international stage. The startup helped bring about the Toronto Declaration in May 2018, setting international standards for ethical AI.

Despite being seen as a leader and a rising star in the Canadian AI sector, Element AI faced difficulties getting products to market. The Globe reported in 2019 that the startup faced high operational costs, minimal revenue, and setbacks on the development of two of its flagship products, causing it to lay off staff.

Speaking with BetaKit last year, Gagné discussed the difficulty Element AI had with commercialization, working with partners that were not using their data efficiently, and the lack of existing infrastructure to scale an AI model, as well as issues with IP.

“We have to build a lot of that stuff, so that took a lot of energy and time,” the CEO told BetaKit at the time. “It’s a key learning, and this is something that we haven’t solved yet.”

Over the last year, Element AI saw some success signing customers and launching a few of its own standalone products. It was reported that amid the early months of the COVID-19 pandemic, Element AI had hit all its targets and was executing “sharply” despite COVID-19 delaying some contracts.

However, 2020 also brought restructuring. In May, Element reportedly laid off 15 percent of staff, at the same time appointing its first chief financial officer and a chief revenue officer to support its go-to-market strategy. At the time, the Montréal startup was said to have around 350 employees.

According to TechCrunch, ServiceNow is making a full acquisition of Element AI and will retain “most” of its technical talent, though will be “winding down” its existing business following integration with ServiceNow.

Additional reporting by The Globe claims that following the announcement of the acquisition Monday morning, an undisclosed number of Element AI employees received termination notices. The report cites an internal document that states there are no roles for the “vast majority” of corporate employees.

In response to BetaKit reaching out for comment, Marc LeCuyer, ServiceNow’s general manager of Canada, stated “ServiceNow’s focus with this acquisition is to retain Element AI’s technical talent and AI capabilities.”

“We are not disclosing the number of employees that will join ServiceNow,” he added. “That said, we are committed to ensuring a smooth transition for the employees not being retained. Element AI employees not being retained as part of the acquisition will have direct access to a ServiceNow recruiter to help them apply for open roles at ServiceNow, including preferred application status through the first half of 2021. Element AI employees not remaining with ServiceNow will receive transition packages, including outplacement services to help them move forward in their careers.”

RELATED: Canada punches above its weight with AI researchers in new Element AI report

ServiceNow also announced the acquisition will allow it to establish an AI Innovation Hub in Canada to accelerate customer-focused AI innovation of its Now Platform. Bengio is also set to serve as a technical advisor for ServiceNow.

“With Element AI’s powerful capabilities and world class talent, ServiceNow will empower employees and customers to focus on areas where only humans excel – creative thinking, customer interactions, and unpredictable work,” said ServiceNow chief AI officer Vijay Narayanan.

ServiceNow called its acquisition of Element AI its latest strategic investment to accelerate AI innovation in its Now Platform. In March, ServiceNow hired Narayanan and launched Now Intelligence with a set of AI capabilities. Element AI is ServiceNow’s fourth AI acquisition in 2020, following Loom Systems, Passage AI, and Sweagle.

“Element AI’s vision has always been to redefine how companies use AI to help people work smarter,” said Gagné. “ServiceNow is the clear partner for us to apply our talent and technology to the most significant challenges facing the enterprise today.”

Following the news that Element AI was set to be acquired, it was reported by the Financial Post that the Government of Canada has terminated a funding agreement it had made with Element AI earlier this year. The outlet reported that in June the government, through the Strategic Innovation Fund, signed a deal with Element AI for “a conditionally repayable contribution” of $20 million over five years, for a $124 million project.

None of that capital was said to have been provided to Element AI and a spokesperson for Innovation, Science and Industry Minister Navdeep Bains told the Financial Post the deal was terminated following the announcement of ServiceNow’s acquisition of Element AI, citing goals which included securing intellectual property and growing firms in Canada.

UPDATE 1/12/2020: This article has been updated with details about the federal government terminating a funding agreement with Element AI.

UPDATE 30/11/2020: This article has been updated with details about potential layoffs that took place at Element AI following the acquisition announcement.

Meagan Simpson

Meagan Simpson

Meagan is the Associate Editor for BetaKit. A tech writer that is super proud to showcase the Canadian tech scene. Background in almost every type of journalism from sports to politics. Podcast and Harry Potter nerd, photographer and crazy cat lady.