AI

Investors are still hot on AI, but blockbuster deals are slowing

A new Crunchbase report took the temperature of the AI startup boom last quarter.
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Investors are still ready to whip out their wallets for AI startups, though there are some signs of possible growing pains ahead for the generative AI craze.

A report from Crunchbase this week found that the number of deals and amount of funding being poured into AI remained robust in the first quarter of 2024, despite fewer eye-popping cash infusions overall than during parts of last year.

Venture capitalists sank a total of $12.2 billion into AI-related startups across 1,166 deals in the first three months of the year, a 4% uptick in total funding and a 9% increase in deals from the previous quarter. While total investment was down about 25% YoY, Chris Metinko, the report’s author, noted that Microsoft’s monster $10 billion check to OpenAI last January skewed the scales a bit.

Fewer headliners: Those kinds of blockbuster cash infusions may be growing fewer and further between. The report noted that the quarter saw only one billion-dollar-plus deal (the Chinese startup Moonshot AI) and only two others that surpassed $600 million (California-based humanoid robot startup Figure and China-based AI media startup MiniMax).

“While that is still impressive, it seemed like such rounds were being raised every week by an AI startup just last summer as the sector saw some of the biggest raises of 2023,” Metinko wrote.

The ongoing bonanza comes amid an otherwise dreary time for the startup market. A separate report from PitchBook found that the quarterly aggregate value of deals dropped to its lowest level since 2017 in the first quarter, as high interest rates continue to make venture capital investments less attractive.

Trouble ahead? While funding may remain strong, some generative AI startups are reorienting or struggling to compete with some of the world’s biggest tech companies in a capital-intensive tech race, the New York Times and the Wall Street Journal both reported in separate features on Monday.

One-time AI startup darling Inflection has been bailed out by Microsoft via some unusual quasi-acqui-hires. And some early generative AI success stories—image generator Stability AI, presentation tool Tome, and copywriting startup Jasper—have each reportedly had to lay off staff.

The flux may indicate that startups are facing some of the same challenges as Big Tech in finding business models that monetize AI enough to compensate for the massive investments needed to build it.

Keep up with the innovative tech transforming business

Tech Brew keeps business leaders up-to-date on the latest innovations, automation advances, policy shifts, and more, so they can make informed decisions about tech.