Local VC market tumbles again
Biotech, climate tech offer silver linings
The headline numbers for venture capital in 2023 were filled with bad news, but below the surface, some promising technologies still attracted big funding rounds.
In Massachusetts, 812 startups raised $16 billion last year, 26 percent less than startups raised in 2022, according to an annual report from PitchBook and the National Venture Capital Association. It was the second year in a row of contraction for the VC market and the lowest amount raised since 2019, when 871 startups raised $11.9 billion.
The market has slowed since the peak in 2021, when local startups raised $34.3 billion, as higher interest rates and volatility in publicly traded tech stocks scared away investors. The meltdown in crypto, with the collapse of FTX in 2022, didn’t help matters.
Other states suffered similar slowdowns. California startups raised $80.1 billion last year, 20 percent less than in 2022. And in New York, startups raised $23.4 billion, down 23 percent.
The largest Massachusetts deals in 2023 were dominated by biotech and climate tech startups. Battery-tech firm Ascend Elements in Westborough ranked first with its $542 million deal in September. Biotech accelerator Curie.Bio in Cambridge ranked second, raising $520 million in February.
Local startups also got in on the generative AI craze kicked off by the popularity of OpenAI’s ChatGPT app. Twenty-two local companies working on generative AI raised $635 million last year, according to PitchBook data, almost 10 times the $75 million raised in 2022.
The largest generative AI companies, however, are based elsewhere, including OpenAI and Anthropic in San Francisco, Jasper in Austin, Texas, and Stability AI in London. Instead of developing core technologies, most Boston AI startups are building on the region’s
strengths in health care, finance, and corporate software.
That’s a promising strategy, PitchBook senior analyst Derek Hernandez said. “With the explosive introduction of ChatGPT-3 and later models, traditional enterprise software solutions have been upended with enormous promises of new horizons ahead,” Hernandez noted in the report. “Many startups have the potential to become major disruptors in this new landscape.”
Two large deals accounted for most of 2023’s gen-AI haul locally. Generate Biomedicines, a Cambridge startup using gen AI for drug discovery, raised $273 million in September. And quantum software startup Zapata AI announced it was merging with a blank check company the same month in a deal that valued the company at $200 million.
The third-largest AI deal could end up as the most significant in the future. MIT spinout Liquid AI, which is building smaller, more efficient AI software models, raised $37.5 million in December. Another significant deal, optical computing startup Lightmatter raising $155 million in December, wasn’t counted in the gen AI category, but the company’s tech is applicable to speeding up AI computing.
Other local startups using generative AI to build their own applications: Video-captioning company Captions raised $25 million in June, business analytics software company Akkio raised $15 million in August, and AI workplace software developer Akooda raised $11 million in July.