AI investments defy other sectors
The sector's venture capital funding midway through 2023 has already surpassed last year's total and is well over halfway to 2021's peak of $9.1 billion.
The headline says it all: “Herd mentality is alive and well as VCs chase AI craze.”
In a “Weekend Analysis” for PitchBook, Leah Hodgson writes that artificial intelligence (AI) “start-ups have seemingly defied the overall decline in VC (venture capital) funding of the past 18 months, collectively raising $15.5 billion this year.”
Separately, Crunchbase News‘ Chris Metinko recently wrote a post with the equally insightful headline that read: “‘Excited’ and ‘Scary’: After Sizzling First Half, Don’t Expect AI Investment to Cool Off.”
Hodgson notes that, after excluding OpenAI’s $10 billion round, “The sector’s VC funding in 2023 has surpassed last year’s total and is well over halfway to 2021’s peak of $9.1 billion. On top of that, deal pace has remained steady and median post-money valuation is up 109.8 percent from last year.”
Metinko picked-up on the OpenAI point, writing that “While it’s true AI started taking off late last year — when start-ups such as San Francisco-based AI video and audio editing tool Descript, and Austin, Texas-based AI content platform Jasper raised big rounds — the craze hit a new level with OpenAI.”
Hodgson observes that “while VCs have become more cautious with the downturn, the eagerness of some investors to plow capital into very early stage AI start-ups suggests that some of the exuberance of 2021 remains. For an asset class where it takes many years to see the real outcome of an investment, potentially missing out on the next big wave of innovation carries a lot of risk. So when a big leap like a generative AI comes along, it’s safer to follow the herd.”
Looking at the second half of 2023 as it relates to AI, Metinko concludes that making accurate predictions is challenging. “While there is still much excitement around the technology, there are concerns about risks it can pose if used improperly and its likely effects on the elimination of jobs.”
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