2023 Trends: AI Startups Dominate US Venture Funding Despite Overall Dip

Summary

  • Despite the continued slump from the 2021’s peak U.S. venture capital investments, investment in artificial intelligence start-ups received a significant boost, attaining one-third of the total investments in the U.S. during 2023.
  • High-profile AI labs such as OpenAI and Anthropic played a significant part in the investment scenario, thanks to their development of large-scale language models which are computationally demanding.
  • The number of late-stage companies raising funds at lower valuations than previous rounds increased dramatically from 8% in 2022 to 20% in 2023, indicating a broad reset of valuations.
  • Of the 723 unicorns (companies valued over $1 billion), many are expected to seek further capital during the current year as they utilize their cash reserves.

Investment in AI Startups Swells Amidst Overall Decline in Ventures

In a year dominated by mega investments in Artificial Intelligence, the most recent statistics illustrate a steady decrease following the 2021 height of U.S. venture capital, with start-ups raising $348 billion.

Investors consistently exhibited an increased interest in AI startups, with one of every three dollars invested in the U.S. last year going to this sector. This pattern was primarily shaped by the emergence of OpenAI’s ChatGPT and the resulting rush amongst startups to advance AI technology.

Impact of AI Labs and Q4 Market Stabilization

AI labs focusing on training large language models, a costly task due to the computational power required, significantly contributed to otherwise hesitant investment behavior. 10% of the total deal value in 2023 was due to massive investments in leading AI labs, OpenAI and Anthropic, according to PitchBook data.

Salvaging some hope for market stabilization, the fourth quarter saw a slight increase in deal activity, with 3,934 deals wrapping up.

Valuation Reset and Billion Dollar Unicorns

A noteworthy shift was observed in the rise of start-ups acquiring capital at a lower worth than their preceding rounds, leapfrogging from 8% in 2022 to 20% in 2023. This suggests an extensive valuation reset among late-stage companies.

In the realm of ‘unicorns’, the term for companies valued over $1 billion in their latest finance round, a large number of the 723 companies are expected to chase capital again this year as their cash reserves dwindle.

Last year, trading in AI and some software names soared, whereas food and grocery delivery stocks and less than stellar consumer concepts traded downwards by 95% since their last round, indicated by private market investor Next Round Capital.

The investment trend and performance of these companies are critical to watch as they can influence forex or trading activities and a number of high-value assets. The investment shifts in the U.S., especially in AI startups, potentially hint at a change in asset valuation that investors should monitor closely.

PIP Penguin
Logo