Toronto AI Firm Ada to Merge With Dialpad at About Half Its Unicorn Value

Ada Support Inc., the Toronto company that makes AI customer service software, has agreed to combine with U.S. firm Dialpad Inc. The Globe and Mail reported, citing two sources familiar with the matter, that the all-share deal values Ada at around $600 million, or about US$430 million.

That price is well below the US$1.2-billion valuation Ada reached at the height of the pandemic tech boom. Back then it raised a US$130-million round led by the Silicon Valley venture firm Spark Capital, which placed it among Canada's "unicorns": private tech companies valued at US$1 billion or more.

From unicorn to merger

Tech valuations began to plummet in late 2021. Valuations of older software providers have stayed low amid questions about how much software built on large language models will disrupt the market. Like other emerging tech firms, Ada went on to make layoffs and cost cuts. According to two other sources who spoke to The Globe, those included eliminating half its marketing team in July and laying off 25 employees last week.

The deal is expected to close as soon as next week. Chief executive Mike Murchison did not immediately respond to The Globe's request for comment.

What Ada does

Murchison and David Hariri co-founded Ada in 2016 after launching an earlier social-media startup. Its software let businesses set up their own customer service chatbots, at first using elaborate prewritten scripts. Beyond answering questions, Ada's technology connects to clients' other systems to update contact information, change bookings or issue refunds.

Ada's website lists customers including Digicel, Indigo Books & Music and Grab. Shopify, AirAsia and Telus have also been among its clients. Its backers include several leading Canadian venture firms and U.S. heavyweights Accel, Bessemer Venture Partners, FirstMark Capital and Tiger Global Management.

Competing with ChatGPT

Ada was early to the AI chatbot business. It has faced increasing competition, especially since OpenAI launched ChatGPT in November 2022. The company rebuilt its technology around large language models, and in April 2023 it rolled out voice agents that could answer customer-service calls.

That shift brought a rapid decline in revenue from older products and an equally fast expansion of the new LLM-based offering. The two sources said the net effect was that Ada's revenue growth did not keep pace with other fast-growing AI companies. It was recently running at about US$50 million a year.

Who is Dialpad?

Dialpad is a privately held San Francisco Bay Area company that sells contact-centre software and has operated since 2011. It is much larger than Ada, which has roughly 200 employees. Dialpad also became a unicorn during the pandemic. Its investors include Andreessen Horowitz, Google Ventures, SoftBank, ICONIQ Capital and Salesforce Ventures, as well as the growth equity arm of the Ontario Municipal Employees' Retirement System.

Last October, Dialpad launched an agentic AI platform that lets businesses build autonomous voice and text AI agents. Its clients include Randstad, Nasdaq and T-Mobile. One source said Dialpad has a strong user base in enterprise telephony and that the deal is seen as a way for both companies to keep growing with Ada's technology.

Turnover at the top

Ada's work force has changed significantly in recent months. In a recording of the July layoffs obtained by The Globe, Murchison told employees the decision was related to a "change we are making around how Ada is building products." Two laid-off employees told The Globe that Murchison had been keen to expand the use of the AI agent Claude in workflows, especially in marketing, to cut costs. They believed AI use within the company led directly to their layoffs.

Co-founder Hariri left in July for a product management role at Shopify, according to his LinkedIn profile, though he remains on Ada's board. Ada's chief marketing officer and chief customer officer have also left this year.

The deal adds to a difficult stretch for Toronto's once high-flying startup sector. The Toronto Journal will report the terms once the companies confirm them.