A new startup, Nexad, is aiming to integrate ads into AI chatbots and has recently secured $6 million in seed funding. This investment was led by A16z Speedrun, Andreessen Horowitz’s accelerator, and Prosus Ventures, with contributions from Point72 Ventures and Sequoia Capital’s Scout Fund. Nexad’s long-term vision is to centralize advertising services for the growing number of small AI platforms as the AI application market becomes more fragmented and decentralized. CEO Jason Hu, speaking to Business Insider, shared this perspective. While some large AI companies, such as OpenAI and Perplexity, have started testing or exploring ads in their products, the AI advertising sector is still in its infancy. Founded in 2024, Nexad has already attracted seven AI companies to its advertising network, including the AI search engine iAsk and the AI companion app Dippy AI. Hu revealed that these AI applications collectively reach around 30 million users. Nexad's business model involves two primary components: algorithmically matching ads to target users and creating customized ad content. The company uses open-source large language models like Llama, along with its proprietary models Gemini and Anthropic, to generate ads that are highly relevant to user queries. Nexad operates its advertising system using a "flywheel" model. When users send queries or messages to AI applications, Nexad generates relevant ads and presents them alongside the AI's responses. By collecting data on user interactions with ads, Nexad continually refines its algorithms to enhance ad performance and user experience. Currently, the company offers text and image ads, but video ads are not yet part of its portfolio. Nexad’s network functions through partnerships with advertisers, participating companies, and third-party platforms like Sovrn, an e-commerce affiliate network. It earns a commission from the ad revenue generated by publishers and provides advertisers with various payment models, including pay-per-click, pay-per-view, pay-per-install, and pay-per-purchase. Despite the nascent state of the AI advertising industry, Nexad already faces competition from other startups like ProRata and OpenAds. These companies also recognize the significant potential of AI-driven ads and are actively entering the market. Hu stated that the $6 million will be primarily used to expand the team, which currently consists of only six members, and to deepen partnerships to broaden the reach of its advertising network. Industry experts see Nexad’s successful funding as a sign of market confidence in the future of AI advertising. The company is well-positioned to capitalize on the trend of AI application decentralization and could emerge as a leader in this field. The founding team brings extensive expertise in machine learning and ad technology, with Hu having previously worked as a machine learning engineer at Martian and in ad monetization at TikTok. Additionally, Nexad has enlisted senior executives from Unity Ads and Uber Ads as advisors to guide its growth and innovation.