A Scaling Perspective on AI Startups

Abstract

Digital startups’ use of AI technologies has significantly increased in recent years, bringing to the fore specific barriers to deployment, use, and extraction of business value from AI. Utilizing a quantitative framework regarding the themes of startup growth and scaling, we examine the scaling behavior of AI, platform, and service startups. We find evidence of a sublinear scaling ratio of revenue to age-discounted employment count. The results suggest that revenue-employee growth pattern of AI startups is close to that of service startups, and less so to that of platform startups. Furthermore, we find a superlinear growth pattern of acquired funding in relation to the employment size that is largest for AI startups, possibly suggesting hype tendencies around AI startups. We discuss implications in the light of new economies of scale and scope of AI startups related to decision-making and prediction.