Red hot GenAI startups defy funding winter chills to raise record sums in 2023

Source: GlobalData

Startup funding has been subdued in 2023 with $224 billion in total venture capital funding (as on 8 December 2023), falling 65% since 2021 when startups raised a record $655 billion. But the story is very different for Generative AI (GenAI) startups, which have raised $10 billion in venture capital, 110% rise compared to 2021, says GlobalData, a leading data and analytics company.

Adarsh Jain, CFA, Director of Financial Markets team at GlobalData, comments: “The slowdown in startup funding over the last couple of years, dubbed ‘startup winter’, was driven by rising interest rates, recessionary risks and overall tough macro environment. Despite these challenges, GenAI startups raising record sums underscores the breakthrough nature of the technology, its widespread applicability, and its power to transform entire sectors and industries.”

Since 2018, GenAI startups in the US secured the lion’s share of the funding with 75% share ($16 billion), followed by Israel, Germany, France, the UK and China – which added another 15% share. In terms of deal volumes, early stage startups formed 40% of all deal volumes, followed by seed stage with 37% of all deal volumes – meaning first time funding of GenAI startups potentially dominated startup funding.

Jain continues: “GenAI startups are expected to continue to attract investment in 2024 and beyond because the technology is underpinned by solid drivers. For instance, apart from accelerating startup funding, patenting activity in GenAI registered 85% CAGR over the last five years, as per GlobalData’s patent analytics. Companies across sectors are ramping up human capital by aggressively hiring talent around GenAI, reveals GlobalData Job Analytics. Companies are getting more vocal about their GenAI strategy in their filing documents with 16x more mentions, as per GlobalData Filing analytics. From drug-development to spaceships, there is no sector which has not been touched by GenAI.”

Investors are also responding with higher valuations for companies focussed on GenAI capabilities. For instance, Google’s share price rose 5% a day after the company announced its latest artificial intelligence model called Gemini, which purportedly beats OpenAI’s GPT-3.5 model. The portfolio of companies marked as AI Leaders have outperformed AI Losers across sectors based on GlobalData proprietary thematic scorecard, since launch of ChatGPT in November 2022.

Jain adds: “One reason to bet big on GenAI is the general-purpose nature of the technology which startups are using to solve diverse challenges. For example, Sarvam AI from India recently secured $41 million funding and its aim is to build GenAI solutions for India’s multitude of languages. Cradle, based in Netherlands and uses GenAI to help scientists design and engineer proteins, secured $24 million in funding in November 2023. Assembly AI, which raised $50 million in the same month, is leveraging GenAI to build Speech AI model using voice data.”

Other notable startups that raised funding in 2023 include: raised $69 million to help build worlds first weather and climate generative AI. Vectara raised $29 million to build GenAI conversational search platform and Anthropic raised $450 million to ensure safe, reliable and interpretable GenAI solutions.

Jain concludes: “GenAI is one of the few technology innovations to have impacted the broad spectrum of industries in such a short time and is fundamentally well placed to continue attracting investments well into 2024 and beyond.”