The “explosion” of generative AI [artificial intelligence] saves the AI sector from the worst of the venture drought, according to an update from CBInsights.
The CBInsights team notes that although AI venture activity slowed down in 2023, the sector — and particularly, generative AI — remains “the one clear bright spot in an otherwise somber fundraising environment.”
Based on CBInsights’ deep dive, here are the key takeaways on the state of AI:
In 2023, AI startups raised $42.5B across 2,500 equity rounds.
Although down 10% year-over-year (YoY), AI funding fell “far less than broader venture funding (-42% in 2023). AI deal volume decreased by 24% YoY — also less than the decline seen in venture as a whole (-30%). However, the year’s 2,500 deals marked the lowest annual deal count in AI since 2017.”
The US saw AI funding jump 14% YoY in 2023, “fueled by mega-rounds.”
AI funding in Europe, on the other hand, “slipped 29%, while it fell a whopping 61% in Asia. The US continues to lead in AI deal share worldwide, with nearly half of all AI deals.”
Generative AI dominated in 2023, “attracting 48% of all AI funding. This was up significantly from 2022, when genAI startups grabbed just 8% of the total. 2023’s surge was driven by massive rounds to large language model (LLM) developers like OpenAI, Anthropic, and Inflection.”
AI deals got bigger in 2023, “with the average deal size climbing 21% YoY to $23.4M.”
The median deal size also “held steady YoY at $4.4M — the second-highest level on record — indicating that bigger checks are being doled out across the board, not just to a few AI heavyweights.”
M&A exits rebounded in 2023 to 311 — “nearly tying 2021’s all-time high.”
The acceleration in M&A points to “a wave of consolidation, as incumbents look to quickly bring AI capabilities on board so they don’t get caught on the back foot.”
The AI sector minted 22 new unicorns in 2023, down 39% from 2022.
However, that’s a much softer decline than other sectors, like fintech and digital health, experienced over the same period. GenAI companies, in particular, are seeing their valuations soar as investors compete for access to deals.
Google was the most active investor in AI in Q4’23, “backing 9 AI startups.”
It was followed by KB Securities, Nvidia, and Plug and Play Ventures “with 8 companies apiece, and then Lightspeed Venture Partners with 7.”