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In a sign that private investors are eager to invest in the application of AI in vertical industries, AI vendor Fractal said it raised $360 million in its latest funding round.
The lead investor is global alternative asset firm TPG, which invested in Fractal through the firm's Asia-focused private equity platform. The investment also included a secondary share purchased by Apax Partners.
The transaction is expected to close in the first quarter. The funding round -- Fractal's fifth -- brings its funding total to $685 million, according to Crunchbase.
Fractal provides AI services in various industries and has developed a specialty in healthcare. Founded in Mumbai in 2000, the company now has its headquarters in New York City.
A growing application of AI
Fractal applies AI in the healthcare field by building AI technology into diagnostic imaging systems, such as X-rays, CT scans and ultrasounds.
The vendor also owns Final Mile, a behavioral science consulting firm working in the public health arena largely in Asia and Africa.
Health IT-focused AI vendors have made dramatic inroads in recent years, in imaging, clinical and population health applications. But Fractal's application of AI is still relatively new, said Ronald Schmelzer, an analyst at Cognilytica.
Ronald SchmelzerAnalyst, Cognilytica
"We haven't yet seen AI widely deployed doing these things yet," he said. "The company is tackling the early growth of the market."
"Honestly, if AI is to be useful, it needs to be applied everywhere," Schmelzer continued.
Addressing opportunity areas
Fractal's investors know the vendor plans to use the money to acquire firms that address opportunity markets Fractal has identified, said Dan Miller, an analyst at Opus Research.
These areas have included applying data science and analytics to help find patterns in large data sets and provide decision support. Now, Fractal is applying AI-infused human assistance to advanced diagnostics and product design in healthcare, Miller said.
In June 2021, Fractal acquired Samya.ai, a revenue growth AI vendor. In January 2021, it acquired Zerogons, an enterprise self-service AI vendor.
Fractal's fundraising success may also mark the start of a year filled with financing for AI vendors. It comes as analyst firms such as IDC are predicting an investment boom in AI systems in the next few years.
"The VCs [venture capitalists] are going to fund companies that have had success penetrating the market," Miller said. "Because there are a lot of relatively small, focused companies -- like the ones that Fractal acquired -- a roll-up approach makes a lot of sense for both Fractal and the small companies it absorbed."
However, it's also true that investors can be more optimistic than customers about the adoption of AI technology, Schmelzer said.
While investors' appetite for AI is still strong, the rest of the year will prove whether there is strong momentum the AI market.