Startups that are building commercial AI applications are inhaling the bulk of venture capital funding across the globe, according to new data from Crunchbase.
The report says that $4.7 billion was invested in AI companies in February, which is 20 percent of the total VC outlay of $21.5 billion for the month. That’s a more than 50 percent uptick over the $2.2 billion spent on AI companies in January
Despite that jump, this is by no means a continuation of the AI funding bonanza of 2023, when investors lavished a record $50 billion on AI startups in an otherwise downturn year that saw a steep decline in venture funding generally. Last year saw $170.6 billion invested across 15,766 U.S startups, which was a “a drop of $71.6 billion from 2022,” according to Pitchbook. Much of the AI gusher was represented by Microsoft’s $10 billion investment in OpenAI in January 2023.
February’s numbers do indicate a sustained investor appetite in the realm of generative AI and large language models, as the rest of the venture capital picture stays bleak. Many limited partners, such as the pension and sovereign wealth funds that provide money for VCs, are hedging their bets amid higher interest rates and a turbulent international landscape. There have been shakeups at some venture capital giants, such as Tiger Global, where some employees accepted buyouts, and Index Ventures, which saw partners Mark Goldberg and Rex Woodbury depart in January.
Certain industry heavyweights plan to continue plowing money into AI: This week it was reported that Andreessen Horowitz, an investor in OpenAI and Mistral, a European competitor, is closing a $6 billion fund this month that will dedicate funds to AI.
Crunchbase’s report does indicate that VCs are concerned that an AI bubble could be developing. Experts previously explained to Inc. that the AI goldrush does in some respects mirror the dot-com bubble of the late 1990s. “Back in the dot-com bubble, every company was rushing to incorporate some kind of internet business into their model. If you had ‘internet’ in your name, your stock price would go crazy and you would get investments,” Alejandro Lopez-Lira, a professor of finance at the University of Florida, said last year.
So far, the situation doesn’t seem to have changed much. Among the 95 unicorns that emerged last year, 20 were AI companies, Crunchbase previously found.
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