Investment Funds are Flocking to AI Startups
Gone are the days when business plans and funding agreements could fit on one of Lion & Compass’ cocktail napkins in Silicon Valley. That was truly a heyday for technology companies, which received gargantuan amounts of money and then rapidly moved to IPOs. Sadly, the iconic restaurant closed in 2017, and funding isn’t like that anymore—unless you’re an artificial intelligence (AI) startup.
Recently, funds for technology startups has seen a major downturn, except if the technology is based on AI. Beginning in 2022, and carrying on through 2023, recessionary fears and high interest rates were definite funding deterrents. In 2022, for example, the medium startup funding dropped to half of the previous year’s and continued to spiral downward in 2023.
AI startups, however, have consistently held center stage in the funding theatre. The headlines, hype, and drama of ChatGPT certainly helped increase attention on AI, and there’s an impressive growth of generative AI companies developing and expanding innovative applications. By 2022, approximately 10% of new startups were in the generative AI realm.
Tech startups have always been unique. They also face substantial challenges. Their often disruptive products and services are typically offered within a rapidly evolving marketplace. Securing funding is often difficult, but there are other challenges, including regulatory compliance, security, data privacy, a knowledgeable workforce, long-term viability, and the high level of financing required, especially for hardware. Fortunately, there’s a long history of navigating these challenges since the Lion & Compass days.
The real story, however, is the prevalence of corporate investment funds for AI that include traditional funds, new units, offshoots, and accelerators. In 2023, generative AI unleashed startups promising to impact several industry segments. The corporations that already have funds in place include Amazon (AWS Generative AI Accelerator), Baidu Wenxin Investment Fund, Cisco, Comcast, Databricks AI Fund, Dropbox Ventures, Google Gradient Ventures, IBM Enterprise AI Venture Fund, Kasikorn Bank, Mitsubishi UFJ Financial Group, OpenAI Startup Fund, PayPal Ventures Startup Fund, Qualcomm Ventures AI Fund, SAP/Sapphire Ventures, ServiceNow, SoftBank Deepcore, Solana, T-Mobile, Toyota, Visa GenAI Fund, Workday, and Zendesk Ventures.
There aren’t too many industries that are not adding AI capabilities, providing a much broader base for AI technology. In addition to the above-named funds, new ones are popping up daily.
For example, Amazon-backed Anthropic launched a $100 million AI fund with Menlo Ventures to back early-stage startups. Menlo will put up the cash and Anthropic will give $25,000 in credits towards its large language models—a win-win. According to the Menlo/Anthropic press release, “Funding for AI startups more than doubled in the second quarter from the first, topping $24 billion, according to data from Crunchbase.”
Anyone remotely familiar with technology funding knows that this AI gravy train won’t last forever. It’s time to capitalize on the frenzy. While the energy behind the rush to fund these companies may look like Silicon Valley’s technology explosion in the 1980s, you’ll need more than a cocktail-napkin business plan.
If you have a solid AI idea, you don’t need to reside in Silicon Valley or the typical Silicon-targeted cities nationally. AI, by its very nature, doesn’t need a recognizable address. So, what are you waiting for?
