GenAI startups defy funding winter, raise record $10 bn in 2023

New Delhi: Generative AI (GenAI) startups raised $10 billion in venture capital globally in 2023, a huge 110 per cent rise compared to 2021, a new report showed on Monday.

Startup funding has been subdued in 2023 with $224 billion in total venture capital funding (as on December 8) globally, falling 65 per cent since 2021 when startups raised a record $655 billion.

But the story is very different for the GenAI startups, according to GlobalData, a leading data and analytics company.

“The slowdown in startup funding over the last couple of years, dubbed ‘startup winter’, was driven by rising interest rates, recessionary risks and overall tough macro environment. Despite these challenges, GenAI startups raising record sums underscores the breakthrough nature of the technology, its widespread applicability, and its power to transform entire sectors and industries,” said Adarsh Jain, CFA, Director of Financial Markets team at GlobalData.

Since 2018, GenAI startups in the US secured the lion’s share of the funding with 75 per cent share ($16 billion), followed by Israel, Germany, France, the UK and China, which added another 15 per cent share.

In terms of deal volumes, early stage startups formed 40 per cent of all deal volumes, followed by seed stage with 37 per cent of all deal volumes - meaning first time funding of GenAI startups potentially dominated startup funding.

“GenAI startups are expected to continue to attract investment in 2024 and beyond because the technology is underpinned by solid drivers. For instance, apart from accelerating startup funding, patenting activity in GenAI registered 85 per cent CAGR over the last five years, as per GlobalData’s patent analytics,” said Jain.

Companies across sectors are ramping up human capital by aggressively hiring talent around GenAI.

Investors are also responding with higher valuations for companies focused on GenAI capabilities.

For instance, Google’s share price rose 5 per cent a day after the company announced its latest artificial intelligence model called Gemini, which purportedly beats OpenAI’s GPT-3.5 model.

Sarvam AI from India recently secured $41 million funding and its aim is to build GenAI solutions for the country's multitude of languages.

Cradle, based in Netherlands and uses GenAI to help scientists design and engineer proteins, secured $24 million in funding last month.

Assembly AI, which raised $50 million in the same month, is leveraging GenAI to build Speech AI model using voice data.

“GenAI is one of the few technology innovations to have impacted the broad spectrum of industries in such a short time and is fundamentally well placed to continue attracting investments well into 2024 and beyond,” Jain noted.