VC activity ticked up in Q1 based on OpenAI’s unconventional corporate investment from Microsoft, according to an update from Pitchbook.
Pitchbook has reportedly tracked $22.7 billion in investment during the quarter, “including $12.7 billion from generative AI investments including OpenAI.” If OpenAI’s deal is excluded, then VC deal activity continued to steadily “decline in terms of deal value and count.”
As noted in the report from Pitchbook, vertical applications companies only “raised $6.0 billion in Q1 after raising $50.6 billion in 2022, demonstrating weakness in conventional domain-specific software.”
The report from Pitchbook revealed:
“Investors lack interest in software solutions unless they drive the generative field forward. Generative AI software continues to earn outstanding valuation multiples, with research startups striking deals based on the level of computing power and talent they will need to make breakthroughs. VC investors are adapting to these requests yet not supporting the capital demands of more mature companies that are unlikely to make research breakthroughs. We are beginning to see the beginning of a generative AI acquisition trend.”
The Pitchbook report added that Microsoft’s investment in OpenAI is “structured similarly to an acquisition, with a reported profit share and exclusive distribution rights, demonstrating the value of third-party technology to tech giants.”
Notably, both Snowflake and Databricks have recently “acquired generative AI startups in Neeva and Rubicon, respectively.”
Neeva is a neural search startup “with significant latency improvements over conventional AI searches, while Rubicon focuses on data storage.”
Apart from these trends, acquisition values “have been minimal, only reaching $3.3 billion in disclosed deal value in Q1 after reaching $48.7 billion in disclosed exit value in 2022.”
As stated in the Pitchbook report, tech giants were “mostly dormant, and Iguazio’s $50.0 million acquisition by McKinsey fell below the company’s prior private valuation.”
In response to the rapid emergence of new and powerful generative AI tools, in late May of 2023, UNESCO reportedly held the first global meeting of Ministers of Education “to explore the immediate as well as far-reaching opportunities, challenges and risks that AI applications pose to education systems.”
Over 40 Ministers shared their policy approaches and plans on “how best to integrate these tools into education.” During the online discussion on 25 May 2023, UNESCO presented a roadmap “on generative AI and education, including open multistakeholder dialogue.”