Investor Confidence in AI Remains Unshaken

Global venture capital funding continued to decline in the first half of 2023, with total investments down 51% compared to the same period last year, according to new data from Crunchbase. However, one area that investors remained bullish on is AI.

Patrick Kerr, MBA

9/27/20232 min read

closeup photo of white robot arm
closeup photo of white robot arm

According to the data from The Washiongton Post, more than 1,000 companies mentioned the technology in their quarterly reports this summer, up from just 36 a decade ago.

Nearly one fifth of all VC funding so far this year went to AI companies, representing $25 billion out of the total $144 billion invested globally. While total AI funding was down from the $29 billion raised in the first half of 2022, it accounted for a larger proportion of VC investments compared to last year. This highlights how artificial intelligence remains a priority area for investors even during the ongoing funding slowdown.

The biggest AI investment was Microsoft's $10 billion funding round for Open AI in January. Even excluding this mega-deal, AI startups raised more capital as a percentage of total VC funding versus last year.

At the same time, overall deal volumes fell 37% versus last year, indicating that investors are being more selective with new investments. The data underscores a flight to quality, with investors focusing on established players in high-growth sectors like AI.

The huge bets being placed on AI show that venture capitalists believe this technology still has enormous potential despite the recent economic challenges.

The companies building the next generation of artificial intelligence - in areas like natural language processing, computer vision, robotics, and more - remain attractive targets for private capital. Generative AI is undoubtedly the hottest topic right now in the tech world. Venture capitalists are betting big on this emerging technology, with investment growing dramatically in recent years.

According to Pitch Book data, VC funding for generative AI startups has skyrocketed from $408 million in 2018 to $4.5 billion in 2022.

The number of early stage deals has also increased substantially, from just 41 angel and seed rounds totaling $102.8 million in 2018 to 107 such deals worth $358.3 million in 2022. The massive uptick in VC interest and deals highlights the momentum and promise around generative AI as it enters the mainstream. Crunchbase highlighted some of the top generative AI startups that attracted huge funding rounds recently. In the video domain, sports highlight generator WSC Sports secured $100 million in Series D financing last year. For generative writing, Jasper - which produces original marketing content - raised a $125 million round led by Insight Partners in October that valued the company at over $1 billion.

Beyond these large later stage deals, early-stage VCs have poured money into generative AI.

Startups in this space raised a staggering $2.2 billion in 2022 from angel and seed investors alone. Leading the pack is Anthropic, which has amassed over $1.3 billion in VC backing for its language model. Other startups like OpenAI, Cohere, Inflection and Stability AI have each raised hundreds of millions in early funding as well. The enormous early stage interest underscores the excitement around the long-term potential of generative AI.

What's next?

It will be interesting to see if AI funding remains resilient for the rest of 2023. But for now, VC investment in artificial intelligence is still going strong while funding in other sectors has slowed dramatically. This suggests that for all the talk of an AI winter, spring remains in full bloom for startups building the AI platforms and applications of tomorrow.