Despite the surge in venture capitalist investment in artificial intelligence (AI) companies, driven by the ChatGPT hype, global venture funding has experienced an 18% drop in the second quarter of 2023, according to recent data from Crunchbase.
Late-stage funding has reached its lowest point since 2018, and companies that secured funds during the thriving VC market of 2021 are now facing the challenge of downsizing as they struggle to progress from seed funding to Series A, and from Series A to Series B rounds. In fact, the Crunchbase tech layoffs tracker has reported over 150,000 job cuts so far in 2023.
Furthermore, there has been a significant decline in the number of mergers and acquisitions (M&A) deals. Compared to the same period in 2022 when there were 9,500 deals, only 6,000 deals took place in the second quarter of this year.
However, amidst this downturn, there have been notable AI funding successes. Machine learning startup Inflection AI managed to secure an impressive $1.3 billion in funding during the last quarter. Other companies, including Anthropic, CoreWeave, OpenAI, Cohere, Builder.ai, and Runway, also received substantial funding.
It’s worth mentioning that major players in the tech industry, such as Microsoft, Nvidia, and Google, actively participated in significant AI funding rounds. In the first half of the year, AI accounted for almost one-fifth of global VC funding, totaling $25 billion. While this figure is slightly lower than the $29 billion raised in the first half of 2022, the AI sector has claimed a larger proportion of the VC market.
Additionally, Databricks, a data warehouse company, acquired MosaicML, a platform specialized in language model training. Crunchbase pointed out that Nvidia’s rise in stock market value can be partially attributed to its chips being crucial for a substantial part of language model training.
However, Crunchbase predicts that VC funding will continue to contract further in 2023 and 2024. Despite the success stories in the AI sector, the overall decline in venture funding and the reduction in late-stage funding levels raise concerns about the future landscape of the startup ecosystem.
