THE VC WORLD’S LONE BRIGHT SPOTS
GENERATIVE AI STARTUPS SECURED MOST VENTURE CAPITAL INVESTMENTS IN 2023, ACCOUNTING FOR 48 PER CENT OF ALL AI FUNDING
The arrival of OpenAI’s viral ChatGPT triggered a frenzy of venture investment and an abrupt change of course inside the world’s biggest technology companies since late 2022.
The generative AI (GenAI) chatbot’s rapid rise is in some ways an outlier. It reached an estimated 100 million users in the first two months since its November 2022 launch, making it one of the fastest-growing applications in history.
OpenAI is now valued at $86bn after a February tender offer that allowed employees to sell stakes in the artificial intelligence (AI) startup. The investment in the creator of ChatGPT is just one of many over the past three years as venture capitalists jostle for a seat aboard the AI rocketship.
Soaring interest rates and a post-pandemic slump have hammered venture capital (VC) funding, making AI one of the VC world’s lone bright spots. A DeepFest report highlighted that despite widespread cutbacks in venture activity in 2023, financing for AI companies remained resilient, decreasing only 10 per cent year-on-year (YoY) to $42.5bn.
The latest data shows that US-based AI startups generated 73 cents for every dollar invested in the AI field in 2023. The world’s biggest economy registered a 14 per cent increase in AI financing, largely because of the previously mentioned model developers, which are all based in the US.
GENAI STARTUPS LEAD THE PACK
GenAI technology has dazzled users and investors with its ability to generate photo-realistic images and human-sounding text in response to just a few words of prompts and has racked up billions in funding for the largest companies.
GenAI startups secured most VC investments in 2023, accounting for 48 per cent of all AI funding, a significant increase from 2022 when the startups accounted for just 8 per cent, according to a DeepFest report.
Large language model developers such as OpenAI, Anthropic, and Inflection received significant funding in 2023, contributing to this rise. Meanwhile, big tech companies including Microsoft, Amazon and NVIDIA have vastly outspent venture capital groups with investments in GenAI startups in 2023, as the established giants use their financial muscle to dominate the much-hyped sector. Last November, IBM unveiled a $500m venture fund to invest in a range of AI companies – from early-stage to
hyper-growth startups – focused on accelerating GenAI technology and research for the enterprise.
US manufacturer of advanced microchips required to power GenAI, Nvidia participated in an estimated 35 deals in 2023, almost six times more than last year.
Building and training GenAI tools is an intensive process that requires immense computing power and investment. Hence, AI startups prefer to partner with big tech companies that can provide cloud infrastructure and access to the most powerful chips as well as money.