Georgian artificial intelligence startup Pulsar AI has made local history by being the first homegrown startup to be acquired by a US company: digital automotive merchandising platform SpinCar.
The cash and stock deal, signed in May, totaled eight figures, and has set a number of precedents in the Georgian startup world. The small group of Georgian investors who bet on Pulsar AI in its seed round had the opportunity to enjoy their first startup exit following the acquisition, but have decided instead to double down–a strong message in a country where investors have historically sought quick returns.
The initial investment in Pulsar AI was a mix of Georgian and Silicon Valley investors, and is significant for the country as it was the first organized angel investment in a startup which has produced returns of this sort.
Startup Grind Tbilisi Director Colin Donohue, who works to create connections between startups and international resources and has supported Pulsar AI in various ways, hopes the deal will encourage more investment in Georgian startups.
“It’s a great day for Georgia as $1.2 million in investment produced such a large outcome in such a short timeframe. It’s also encouraging that investors decided to keep betting on Pulsar’s future. Investors overwhelmingly are converting to stock in the new company, following the Pulsar team’s expectations of continued rapid growth.“
In the beginning was the (chatbot’s) word
Friends Dachi Choladze and Zaal Gachechiladze formed Pulsar AI in 2016 having decided to put their talents to work to get in on the artificial intelligence game.
Machine learning problems were becoming increasingly relevant and exciting: Facebook had just enabled chatbots on its Messenger platform, and the time was ripe to help Georgian companies accelerate the adoption of these new tools.
The duo developed a successful business on the Georgian market contracting for local companies in need of AI and machine learning tools. While such existed for English, Pulsar AI had to build them from scratch for Georgian.
While eventually Pulsar AI would end up developing voice-recognition tools for English, “much of what we learned at that time”, CEO Dachi Choladze says, “would become the foundation on which we would later create our other processing tools.”
Revenue on the Georgian market was good for the young techies, but they were dreaming much bigger. Pivoting away from individual contract projects, they began building a conversation engine which could learn and be adapted to other uses more quickly and potentially scale faster than custom development.
The challenge they faced: being in Georgia, how were they to enter new markets and in what product segment?
Making friends, helping others
In early 2018, Pulsar AI accepted the invitation of Startup Grind Tbilisi Co-director Giorgi Tukhashvili to be part of a group the chapter was sending to Silicon Valley.
“It wasn’t clear at the time what this could lead to,” Dachi says, “but we understood that connecting with the world center of innovation and startups would give us a good perspective on the field and maybe some leads.”
The trip to Silicon Valley was organized around the Startup Grind Global conference–a 10,000 person event showcasing some of the top names in the startup world, from top-tier VCs like Sequoia and Andreessen Horowitz to founders from top startups like Stripe, Airbnb and Tesla.
Two of the core SG values are ‘make friends, not contacts’ and ‘help others’. Trip organizers Giorgi Tukhasvhili and Colin Donohue felt these values were important to drive success in Georgia’s nascent startup ecosystem. Extending the ‘help others’ mantra beyond the conference, Giorgi and Colin took the approach of bringing together specific groups of people whose connections could be powerful and helpful.
Georgia had sent a delegation of startups to Silicon Valley the year before, paying ‘insider’ consultants to organize meetings with VCs, but the trip did not produce results and was costly. This time around, Georgian startups were connected with individuals who would naturally have more of an interest in supporting Georgian founders.
Donohue and Tukhashvili researched successful Georgians in Silicon Valley and worked to introduce the top prospects to Georgian founders in a welcoming environment.
They arranged small side events with specific groupings of individuals. To provide a venue for the side events, the eight people on the startup trip crammed into a 2-bedroom AirBNB next to the ocean in Pacifica.
One of these events was the ‘Diaspora Dinner’, where a small group of hand-picked Georgians in the Bay Area were introduced to the Georgian founders.
Enter Irakly George Arison, one of the most well-known Georgians in the startup world. Born and raised in Georgia in his teenage years, Arison is the founder of Shift Technologies–a used car buying platform which George successfully placed on NASDAQ where it trades as SFT with a market cap of $700,000,000 at time of writing.
George had built a personal brand in Silicon Valley which fostered investments from heavy hitters as Goldman Sachs, with hundreds of millions of dollars invested into Shift under his leadership.
Other Bay Area Georgians who came to the dinner included NBA Champion Zaza Pachuli, who was actively developing his knowledge and experience in venture investing, and ‘mentor capitalist’ Nicholas Zaldestani who carried a track record of work with Oracle and tech startups as well as a family legacy of philanthropy.
Having two or three hours of time over dinner and drinks allowed the Georgian founders to really connect with Silicon Valley Georgians, producing some solid connections. It also gave a dose of Silicon Valley pace.
Dachi Choladze remembers his first meeting with George Arison:
“When I first met him, he invited me to talk about what we’d done in Georgia, but while I was talking he was texting on his phone. I thought he wasn’t really paying attention to what I was saying. He suddenly said he had already scheduled three meetings for us.
I realized that while listening to me he was pitching the same thing to other people in order for us to get those meetings.
That’s when I realized that in the US, people make use of every second to move forward and to grow. This was the first time I had the impression that [the US] was the right place to be.”
A startup is born
Arison and Pulsar continued talking: he gave the fledgling startup a project to test their capabilities, and later access to Shift data, which enabled them to develop a conversational AI tool specific to the automotive industry. He also positioned them with investors and industry contacts, giving generously of his scarce time because he believed in the team and saw an opportunity to help make them succeed.
Following his initial investment, Arison later came on as Pulsar AI’s board chair when the company incorporated an entity in the US focused specifically on conversational AI tools for the automotive industry.
Dachi and Zaal realized they would need to expand the management team to be ready for this new direction and rapid expansion, so their team member Sopo Chkhoidze became co-founder of the new entity and joined the c-suite as chief operating officer.
The team rushed to get a prototype to share with investors. Though at the time there was not a dominant player in conversational AI in the automotive industry, it would be just a matter of time before someone occupied that niche.
Pulsar AI worked hard and fast to build a system they trained on the data brought by their cofounder George and were able to achieve remarkably high accuracy in responses.
The AI chatbot could understand questions, even complex multi-part questions, was able to search the database of cars to provide relevant answers to customers without bothering sales teams and chewing up time.
Pulsar successfully raised funds from Georgian and Silicon Valley investors totalling $1.2 million. A small seed round for Silicon Valley but a tremendous opportunity for the Georgian team. Dachi comments:
“Five of the nearly 25 investors that bought into Pulsar’s vision were from Georgia, many of whom were making angel investments for the first time. The fact that we had Georgian investors on board meant a lot to Silicon Valley, and vice versa. We’re happy to have created this precedent to show that it’s worth investing in a tech company in Georgia.”
Adapting to the American market
Cash and prototype in hand, Pulsar AI moved to push its product onto the American market.
“The vision about the product that we started with was pretty different from the end product. That’s mainly due to the customers we were dealing with”, CTO Zaal Gachechiladze says. “Being a dev shop for a customer and a product developing startup are two very different things”.
The needs and preferences of customers shaped the product and required the team to be nimble and continually adapt and iterate to get closer and closer to a product-market fit.
The technical development of the product was continually informed by conversations with customers, which Sopo shares were surprisingly natural and informative, somewhat unlike what the team had experienced in Georgia.
“Customers were very insightful and it was amazing how helpful it was to have at least a 15 minute conversation with each of them. They were very open about sharing their experience, their value, and their vision, how they saw the product evolving. I feel they appreciated the solution that we were building and the devotion we had. That was one of the differences that I saw – they were committed to building a long-term relationship with us.”
Soon the team’s work and attention to customers showed signs of turning into something very significant.
“We felt confident that we’d get noticed if we found the product-market fit, and created the tech to solve that problem. But we didn’t expect it to happen so soon”, CEO Dachi Choladze says.
And soon they did get noticed. Major market player SpinCar, in the business of online merchandising of vehicles with the help of 360 degree visuals, began to take an interest.
SpinCar’s initial approach to Pulsar AI’s came with an offer to become the startup’s exclusive reseller, which the team felt would limit their space to increase the value of the company. SpinCar agreed to a regular reseller agreement. Several months after working together, SpinCar told Pulsar they had been receiving positive feedback from customers, and thus began a conversation on possibly acquiring Pulsar, a prospect the team evaluated very carefully and “a little slow”, as Dachi puts it.
In the end, however, Pulsar AI decided the growth they were aiming for would be easily achievable with SpinCar, and decided to accept the acquisition offer.
But the founders and investors were not the only ones to benefit; the team that had spent long days in pursuing the dream of Pulsar AI will continue to be part of that dream and to benefit from the deal.
In the process, Tbilisi also has become more prominent and will continue to be the home of the team, says Sopo Chkoidze: “All of our team members are part of the SpinCar family now. We’re in the process of merging the two cultures together, and we’re really focused on that right now. SpinCar has visited Georgia twice, they recognize that the product we create is backed by the people and the team. They see it as a big asset and want to expand that. They see Tbilisi as one of the assets behind Pulsar that they can use to accelerate the growth that they are anticipating.”
The partnership opens up more growth potential for Pulsar AI’s products which had been used by over 50 dealerships prior to the merger.
The automotive sales industry has lagged behind new technologies in recent years, but Covid-19 has left many of them with no choice but to adapt.
The initial product with which SpinCar appeared on the market was a tool to help dealers provide better (360*) visualisations of their vehicles, and support nearly 3000 dealers with their products. Pulsar AI comes into play when customers are done looking at pictures and want to ask questions about the vehicle. Its technology can even pick up on the specific desires of customers from the verbal interaction, and if they’re interested in something else additionally, creating new leads.
“In doing so, Pulsar AI’s tech creates enormous value for dealers, because dealers know what customers like, what they’re interested in. And they can answer these questions as well and help their customers find a perfect match”, Dachi comments.
Significance for the Georgian startup ecosystem
“People often ask me if Georgians can compete on the global level”, Startup Grind Tbilisi’s Donohue says. “Pulsar’s performance gives us a sense of that answer. They were faced with massive challenges of quickly building a product for a foreign market, and then that of responding rapidly to customer feedback and reworking the product to customers’ needs and preferences.”
The Pulsar AI acquisition will send positive vibes throughout Georgia’s startup ecosystem, Donohue adds:
“For young Georgians it’s amazing to see Pulsar founders making ‘life changing money’ in a short time. A good startup exit means that you may never have to work again, but also that you have money to do amazing things.
I also think it’s time investors start ‘getting real’ about startups as something to invest in. We will see inexperienced individuals claiming to be able to make money on startups and it will be a dangerous time. But for the people who learn about best practices and invest with experienced VCs or experienced angel groups, there are great opportunities to grow wealth and create new opportunities for Georgia”.
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