‘Mega-deals’ could be inflating overall AI funding figures

Key Takeaways:

– Venture capital investments in generative AI and AI overall performed well this year, despite overall decrease in VC investments.
– Funding for AI-related startups reached $68.7 billion in 2023, with generative AI vendors like OpenAI, Stability AI, and Anthropic receiving significant investments.
– The sector is expected to end the year with higher investments compared to previous years.
– However, the total investment numbers may be inflated due to “mega-deals” from big-name backers.
– Examples of these mega-deals include Amazon’s $4 billion investment in Anthropic, Microsoft’s $10 billion investment in OpenAI, and Microsoft-led $1.3 billion funding round for Inflection AI.
– After subtracting the mega-deals, the total VC funding for generative AI in Q3 is around $15.1 billion.


It’s safe to say that VCs struck while the iron was hot this year where it concerned generative AI.

While venture capital investments overall fell compared to last year thanks to macroeconomic challenges and other related factors, startups in the generative AI space — and AI more broadly — did quite well.

Funding for AI-related startups surpassed $68.7 billion in 2023, according to PitchBook, with generative AI vendors like OpenAI, Stability AI and Anthropic accounting for a substantial portion of that figure. And it appears that the sector will likely close the year with substantially higher investments than the past couple of years.

But could the top-level numbers be misleading?

A report on AI investment in Q3 by PitchBook, released this morning, found that “mega-deals” (i.e., multi-hundred-million-dollar investments from big-name backers) vastly inflated deal totals this year.

For example, just a few months ago, Amazon pledged to invest up to $4 billion in Anthropic, the company developing the AI-powered chatbot Claude. OpenAI secured a $10 billion investment from Microsoft (albeit not all at once and partly in the form of cloud compute credits). Inflection AI, a firm creating what it describes as more “personal” AI assistants, raised $1.3 billion in a funding round led by Microsoft. The list goes on.

In Q3, VC funding inclusive of mega-deals totaled around $22.1 billion. But after subtracting the tech-giant-led tranches secured by generative AI startups, the total is closer to $15.1 billion for the sector.

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AI Eclipse TLDR:

Venture capitalists have shown significant interest in generative AI this year. Despite a decrease in overall venture capital investments due to macroeconomic challenges, startups in the generative AI space have performed well. According to PitchBook, funding for AI-related startups exceeded $68.7 billion in 2023, with OpenAI, Stability AI, and Anthropic being major contributors. It is expected that the sector will end the year with significantly higher investments than in previous years. However, a recent report by PitchBook suggests that the top-level numbers may be misleading. The report found that “mega-deals” involving multi-hundred-million-dollar investments from big-name backers have inflated the total deal amounts this year. For instance, Amazon committed to investing up to $4 billion in Anthropic, and OpenAI secured a $10 billion investment from Microsoft. After subtracting these tech-giant-led tranches, the total VC funding for generative AI startups in Q3 is estimated to be around $15.1 billion.