Investors Are Dropping Billions on Startups in the AI Craze

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When news leaked earlier this year that Microsoft had invested billions of dollars into OpenAI — the company behind the revolutionary ChatGPT tool — this led to rumblings of additional investments from other major tech companies. Since then, significant investments have been made in artificial intelligence. Many feel that this is just the beginning, as global tech companies are looking to increase the presence of AI-powered tools in business operations.

Since ChatGPT was released to the public in late 2022, investors have started dropping billions on AI startups and competing products in the space of generative AI. Here’s an examination of the trend of AI startup investments and what the field looks like at the moment.

What’s the Field Like for AI Startups?

According to Crunchbase, companies that operate under the AI category raised $25 billion in funding for the first half of 2023. This figure amounts to about 18% of total global funding and includes the $10 billion investment that Microsoft made in OpenAI at the beginning of the year.

In 2022, $4.5 billion was poured into generative AI startups alone, according to PitchBook. It also announced that there were about 46 deals in the first quarter of 2023 that amounted to $1.7 billion in funding for generative AI, with $10.68 billion worth of deals that were announced but not completed officially.

There have been substantial investments made in various AI-based startups. There are also many AI unicorns: startups that have surpassed the one billion dollar valuation mark in a quick period of time. For example, Inflection AI recently announced a valuation of $4 billion after funding came in from Microsoft, Nvidia and Bill Gates personally, among other investors.

Notable AI Startup Investments

Tech giants like Google and Microsoft are looking to invest heavily in this space. This is in addition to the venture capital funding coming in globally. There are a few startups in the AI field that are worth paying attention to right now. Here are some notable AI startup investments:

Inflection AI

Forbes recently reported that the year-old startup raised $1.3 billion in funding only two months after its chatbot Pi was released. The startup is focused on personal AI, which uses a similar technology to ChatGPT to give regular people a chatbot that can help with planning, scheduling and gathering information.

Anthropic

Google, Salesforce and Zoom were the notable tech giants participating in the recent $450 million round of funding for Anthropic, making this the largest AI investment behind Microsoft’s support of OpenAI in January. The company founded by former OpenAI executives is the creator of Claude, a competitor to ChatGPT.

Cohere

This generative AI startup out of Toronto was able to raise $270 million recently, bringing its valuation up to $2 billion. Only rivals Anthropic and OpenAI have been able to raise more in capital funding. With funding from Nvidia and Salesforce Ventures, the startup is known for providing AI tools that offer interactive chat features and the ability to generate text for product descriptions.

Competition in AI Investing Space

Many tech giants are investing in AI across all levels, from generative tools to technology needed for manufacturing.

According to Meta, it has applied machine learning to various aspects of the Facebook social media platform. The simple introduction of AI-based suggestions led to a 7% increase in the overall time that users spent on the platform. This AI-suggestion tool also helps with targeted ads so that users see completely relevant ads. All of this means that the AI-powered tools can help these companies increase ad revenue, making the investments worthwhile in the long run — hopefully. 

How Competitive Is the Landscape?

The AI arms race is heating up, and it’s not rare to see a press release about another round of extensive funding for an AI startup. Here are some of the recent updates from tech giants that are investing heavily in AI startups:

• Chipmaker Nvidia made six deals last year that totaled $297 million, and it’s been heavily involved in other investments this year. 
• Google and Salesforce Ventures participated in Anthropic’s $450 million funding round.
• Microsoft has participated in nine AI-based deals since 2021, with notable investments in Cruise and Wayve, two startups focused on self-driving cars and the technology needed.

It’s worth noting that large global companies like Microsoft, Google and Salesforce have separate venture capital segments that are focused on investing, as well.

What’s the Potential for Success?

Only time will tell what the potential for success is for these AI startups as the funding pours in. The largest companies in the world have realized that investing in AI startups will benefit other business ventures.

For example, Microsoft and Nvidia have invested heavily in Inflection AI while also working with it. Microsoft is the cloud computing partner for the startup, while Nvidia has been working with it to set up GPUs needed to power language learning models.

Closing Thoughts

There are currently substantial amounts of funding being invested into AI startups, and this doesn’t appear to be slowing down any time soon. Companies that weren’t even around a few years ago are already unicorns with billion-dollar valuations.

While it’s impossible to say for sure how profitable these startups will become, it is clear that major tech companies are banking heavily on AI. 

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