Generative AI Startups Buck Funding Slowdown, Raising $10 bn: GlobalData

Despite a slowdown in startup VC funding, the landscape for Generative AI (GenAI) startups presents a stark contrast.
Fund raising by AI companies in 2023Startup funding has been subdued in 2023 with $224 billion in total venture capital funding (as on 8 December 2023).

Total VC funding fell 65 percent in 2023 since 2021 when startups raised a record $655 billion. But the story is different for Generative AI (GenAI) startups, which have raised $10 billion in venture capital, 110 percent rise compared to 2021, says GlobalData.

Adarsh Jain, CFA, Director of Financial Markets at GlobalData, highlights the significance of this surge: “While the broader startup ecosystem has faced challenges amid economic shifts, the extraordinary rise in funding for GenAI startups underscores the transformative potential and broad applicability of this technology across various sectors.”

Global Funding Trends:

US Dominance: Since 2018, GenAI startups in the US have amassed 75 percent ($16 billion) of the total funding, followed by contributions from Israel, Germany, France, the UK, and China, accounting for an additional 15 percent.

Stage Distribution: Early-stage startups accounted for 40 percent of total deal volumes, closely followed by seed-stage funding with 37 percent, indicating a substantial focus on initial funding for GenAI startups.

Factors Driving Growth:

Solid Drivers: GenAI’s growth is substantiated by an 85 percent Compound Annual Growth Rate (CAGR) in patenting activity over the last five years, accompanied by heightened hiring activity and increased mentions of GenAI strategies in corporate filings.

Diverse Applications: GenAI is penetrating various sectors, from healthcare and drug development to space exploration, marking its influence across industries.

Investor Response and Notable Cases:

Market Response: Google’s announcement of the Gemini AI model led to a 5 percent surge in its share price, reflecting investors’ enthusiasm for advancements in GenAI.

Performance Metrics: Companies categorized as AI Leaders, based on GlobalData’s thematic scorecard, have outperformed AI Losers across sectors, indicating the market’s confidence in GenAI-focused companies.

Highlighted GenAI Startups of 2023:

Sarvam AI: Secured $41 million to develop GenAI solutions catering to India’s diverse languages.

Cradle: Raised $24 million to aid scientists in protein design and engineering using GenAI.

Assembly AI: Raised $50 million to construct Speech AI models using voice data.

Tomorrow.io: Raised $69 million to pioneer weather and climate generative AI.

Vectara: Secured $29 million to create a GenAI conversational search platform.

Anthropic: Raised a substantial $450 million to ensure safe, reliable, and interpretable GenAI solutions.

The remarkable funding surge in GenAI startups amidst the broader funding slowdown emphasizes the technology’s transformative potential and the growing investor confidence in its diverse applications across industries.

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