AI and machine learning (ML) focused VC investment slumped in line or consistent with the market but retained “resilient valuations” as the market sorts through the fallout from the recent technology crash.
As noted in an update shared by Pitchbook, funding “slumped 21.1% QoQ to $23.9 billion yet remained in line with quarters prior to Q4 2021.”
Median late-stage valuation “rose 11.1% from $90.0 million in 2021 to $100.0 million in Q1 2022, in line with the broader market.”
As noted in the update from Pitchbook:
“VC funding was driven by healthcare, autonomous vehicles, and natural technologies including Conversational AI and NLP. We tracked a record $1.5 billion deal value for quantum AI startup SandboxAQ in its spinout from Google. Most of the 70 categories we track are on pace to decline in funding this year, with notable exceptions including accounting automation, autoML, genetic analytics, and supply chain optimization.”
The report added that VC exit values “regressed from 2021’s boom in chillier market conditions.”
China drove the IPO market “with two IPOs over $1.0 billion for DeepGlint and AInnovation.”
The SPAC market “remained open for AI-integrated companies including Core Scientific and SES.”
The report also mentioned that the acquisition market “cooled with tech giants failing to make mega-acquisitions of $100 million or more.” Numerous companies “achieved high exit values with MOICs under 3.0x, indicating poor results for their investors.”
A challenging fundraising environment “may encourage more flat or down exits for companies that raised excessive capital during a bull market.”
Pitchbook’ outlook for an uptick in AI mega-exits “has been pushed out until market conditions improve and companies can bear the high operating costs of building sophisticated AI models.”
To view the complete report, check here.
As covered last month, Hilary Wiek, CFA, CAIA Lead Analyst, Fund Strategies & Sustainable Investing, noted that when Pitchbook last reported their benchmark returns, performance “was through June 2021.”
The research report also mentioned that vaccines “were available, masks were coming off, and many office workers had resumed their commutes.” Then came “the next wave of COVID-19, leading some to expect that the phenomenal returns of H1 2021 might see a pullback.”
The report from Pitchbook further noted that “looking at the one-year horizon IRRs through September 2021, however, the numbers are still incredibly strong, though preliminary Q4 numbers hint at a return to more normal levels.” It has “been astonishing how little the economic devastation many experienced during the pandemic has affected the performance of private market funds.” In fact, “a great deal have thrived,” the research report noted.