DarwinAI has raised US$6 million led by the Business Development Bank of Canada’s Deep Tech Venture Fund, as the Waterloo, Ont., startup looks to build on the reshoring and automation of electronics manufacturing. Here’s what you need to know.

The technology: Founded in January 2017, DarwinAI initially focused on the field’s fundamentals, “working on core problems related to machine learning and deep learning,” said CEO Sheldon Fernandez. Its early product was a platform that let developers and scientists construct their own AI models. 

But DarwinAI’s technology now lives beyond the screen. Clients use its stack of AI models, software and hardware to detect defects in parts flowing down their factory lines. DarwinAI specializes in printed circuit boards, components found in most every electronic device. “There’s no incumbent right now” automating visual inspection in that space, said Fernandez. The firm is currently negotiating client contracts, and hopes to have its technology installed in up to 300 inspection points on factory floors next year.

DarwinAI’s evolution reflects market trends. Fernandez cited “the movement of electronics manufacturing from Asia to North America” amid supply-chain reorganization and geopolitical tensions, as well as “the difficulty in hiring labour.” In August, the newly passed U.S. CHIPS and Science Act allocated US$52.7 billion for semiconductor R&D and production, while processor giants Intel and TSMC are spending tens of billions on new plants in the country. The legislation and new megafoundries have prompted other firms to consider shifting some fabrication to the continent, Fernandez said. Most of DarwinAI’s customers are based in the U.S., and it set up a subsidiary there last year. 

The money: DarwinAI set out to raise mid-year. “It wasn’t an ideal time,” Fernandez acknowledged, citing economic uncertainty and Russia’s invasion of Ukraine. “But we just had to do it.”

DarwinAI’s last financing was a US$4-million round that gave it a US$27-million valuation, led by Honeywell’s venture arm, according to PitchBook. Fernandez declined to disclose the company’s current worth, but said it was “slightly under” the previous raise, “in keeping with the realities in the AI industry.” He said the round was all primary capital and all equity, but declined to identify any of the other investors participating.

Canada’s deep bench of AI expertise has attracted considerable capital, with startups offering everything from automation consulting to large language models to chatbot-builder tools, raising hundreds of millions. DarwinAI’s financing—US$9.8 million before its latest round, per Pitchbook—looks modest by comparison. “We’re just trying to be prudent in terms of what we need to build the business,” said Fernandez, who aims to grow his 30-person team by as much as double next year. “If we’re going to ask for $50 million or $100 million, we wanted a clear plan for how to leverage those funds.”