AI may be getting hyped as the next billion dollar (or much bigger) opportunity these days after that mega-round for OpenAI from Microsoft, but that rising tide is not lifting all boats. SoundHound -- the voice AI company that provides conversational AI services for automotive, connected home and hospitality applications -- earlier this month laid off 40% of its staff and as a follow up, today announced that it had raised $25 million in equity to shore up its position in the market.
SoundHound did not say who is behind the funding except to note that it is coming from "a diverse set of financial and strategic investors, both from the current shareholder base and new capital providers."
SoundHound notes that it's coming in the form of preferred equity and convertible into shares of Class A common stock, potentially "on or after the one year anniversary of the issuance date if certain price conditions are met." We have reached out to the company to see if we can get more detail on that investor list.
We have also asked if it could provide more specific detail on how the proceeds will be used. One report from last week noted that the laid-off employees will only be getting severance if the company raises more money, and we have confirmed with the company that this will be one of the uses.
SoundHound was once valued at $1 billion+ when still a privately held startup and seen as an independent alternative to services built by Big Tech, such as Amazon's Alexa. (Earlier than that, it developed music AI, and many thought of it as a more powerful and effective alternative to Shazam, the company acquired by Apple that helps with identifying music.)
SoundHound went public in November 2021 by way of a SPAC merger at a $2.1 billion valuation. But … surprise, surprise, the SPAC valuation went the way of so many other SPACs and did not hold. SoundHound today has a market cap of $295 million.
That hasn't been helped by the wider economic climate and the winter that has hit the tech sector in particular. Tech stocks have taken a nosedive in the last year, and that's impacting companies particularly hard when they are still effectively proving out their product-market fit.
SoundHound has inked a lot of big partnerships over the years, including deals with Mercedes-Benz, Kia and Hyundai in its extensive automotive efforts and more recently Toast in the hospitality sector, as well as a deal with Qualcomm to integrate SoundHound voice AI into Snapdragon, work with Snap and more. But how much all of that has played out in products -- and specifically products that are generating revenue right now -- is not so clear.
The company, in its funding announcement, also provided a preliminary look at its full-year 2022 results, and they are okay but not massive. Revenues will be $31 million for the year, "at the high end of its prior guidance," with gross margins of over 70%. "The Company expects revenue growth in 2023 to accelerate to approximately 50% year over year due to its strong customer base, well over $300 million bookings foundation, and increasing demand for its voice AI-enabled customer service products," it noted. In other words, it's continuing to put a lot of hope on future prospects.
We'll update this post as we learn more.