AI is gobbling up a bigger slice of a shrinking startup funding market

If it feels like every other funding announcement from a venture capital firm lately has focused on AI, you wouldn’t be too far off: One in four investment dollars this year has gone to startups using the technology, according to a new report from Crunchbase.

The firm, which tracks venture dollars funneled into startups, found that the share of venture capital money going to AI-related companies in the US in 2023 more than doubled YoY, a sign of just how much the hype around ChatGPT and its ilk has captivated investors in an otherwise dreary startup-funding market.

That’s a big jump from AI’s usual slice of the pie, historically speaking. Crunchbase said AI’s share of funding dollars averaged around 12% between 2018 and 2022, before rocketing up to 26%, or about $23 billion so far, in 2023. The soaring growth comes as venture funding in North America has been down 50% across the board in the first half of the year.

“It hasn’t even been a year since AI rushed to the forefront, and we’re seeing so much interest in it,” Crunchbase News Editor in Chief Marlize van Romburgh told Tech Brew. “It’s one of the few bright spots in venture funding overall.”

Crunchbase’s categorization system for startups doesn’t require them to be focused only on AI to fit the criteria for the classification; its AI startup category encompasses a broad swath of industries ranging from real estate to biotechnology to fintech.

Van Romburgh said it’s possible that companies that were already using AI in a behind-the-scenes capacity may have sought to play up their credentials in the space as the hype wave has taken hold. She also expects to see investors taking a harder look at startup claims around AI.

“I do think we’ll start to see more scrutiny…what really constitutes being an AI company? I think investors are asking this question,” van Romburgh said. “We’re definitely going to see some flops that happen every time there’s a big surge in funding for a particular industry.”

But ultimately, van Romburgh said she expects the tech industry will look back on bragging about AI the same way they currently think about startups that hyped themselves as “internet companies” 25 years ago.

“What I think will happen before too long is really this notion that AI is going to be a given,” she said. “So I don’t know how much longer companies are really going to be able to tout [AI] as something unique.”