Investors still cannot get enough of artificial intelligence.
That’s the most evident conclusion you possibly can draw from a quick look at the financing data for the just-completed third quarter. In the third quarter, artificial intelligence startups raised $18.9 billion, on Crunchbase. This is the second-largest quarter of AI funding – following the second quarter, which saw $23.4 billion invested – since launch ChatGPT in November 2022
While the third quarter numbers represent a decline of 19% in comparison with the second quarter, it is also an increase of just about 30% in comparison with last 12 months, when “only” $14.6 billion was invested in AI startups.
Lots of huge rounds
After raising almost $19 billion, there have been after all several large rounds, including:
Despite these large rounds, the most up-to-date quarter lagged behind the second quarter, likely because the latter had more extremely large rounds of $500 million or more. In fact, there have been twice as many – eight – and three times as many rounds valued at greater than a billion dollars in the second quarter.
This after all included Elon Muskgenerative artificial intelligence start-up, xAIwhich officially announced a long-rumored $6 billion round at a $24 billion valuation, including investments Valor Capital Partners, You, capital, Andreessen Horowitz, Capital of Sequoia, Faithfulness Management & Research Co., Prince Alwaleed Bin Talal AND Kingdom Holding Co.among others.
Deal flow and seeking to the future
Another interesting thing to notice about the third quarter numbers – apart from the huge dollar amount – is that deal flow is actually declining. In fact, deal flow declined over the last two quarters, and in the third quarter for the first time since ChatGPT fired.
Deal flow dropped from 1,211 rounds announced in the second quarter to only 947 in the third quarter, a decline of twenty-two%. This decline is much more significant if you look at last 12 months’s third quarter, in which 1,444 investment transactions were concluded – 34% greater than in the previous quarter.
As total dollar value increases and deal volume declines, this likely means more large deals for more proven AI startups (or at least people who can persuade investors of their AI chops) and fewer early seed and Series A deals for young startups.
This scenario is likely provided that investors only have so much money to position bets on AI startups, and with the large valuations associated with these large rounds, money could dry up quickly.
A major decline in the value of the dollar shouldn’t be expected in the fourth quarter. on Wednesday, OpenAI officially announced a long-awaited $6.6 billion raise, led by Develop capitalat a post-money valuation of $157 billion. There are also reports OpenAI rival Anthropic he might be looking for additional cash soon.
With so many generative AI startups (people who raise really large rounds) burning so much money so quickly, we may proceed to see big dollar totals for the next few quarters, even if funding numbers proceed to fall.