DBT Bureau
Bengaluru, 24 May
Venture capital (VC) and private equity (PE) firms are doubling down on artificial intelligence (AI) investments, even as overall investment activity remains subdued.
According to S&P Global Market Intelligence data and analysis, the top 35 venture capital firms announced 51 AI funding rounds, up from 31 a year earlier in the first quarter (January-March) of 2024.
Not only the number of deals but also AI represented a larger share of firms’ total investments, increasing to one out of every five in early 2024 versus one out of every 10 in early 2023.
Though most GenAI startups are early in their journey, they are being funded by VCs that also focus on early-stage investing. Andreessen Horowitz LLC and Sequoia Capital Operations LLC have put several bets on AI startups.
Andreessen Horowitz has made the most deals in the AI space since 2023, investing in 29 startups, the data from S&P Global Market Intelligence. Nearly half of the investments are in GenAI companies, including mostly text, video and image generators.
As AI investments increase, firms are also becoming choosy about which startups they fund. VCs are trying to answer is which part of the AI supply chain will accrue the most value and which will not, the report noted.
“Enterprises want more than just a model trained on large chunks of the public web — they want models tailored to their business needs, and they also want applications that can provide direct business benefit,” wrote S&P Global Market Intelligence 451 managing analyst Nick Patience, who specializes in AI and machine learning.
Among AI startups, VC funds are more focussed on those GenAI application companies, which solve specific business problems than the generic ones like creating content, text, or code.
“Since 2023, top venture capital firms have participated in 91 funding rounds within the vertical AI space, which is tailored to address the challenges and requirements of a specific sector,” the report noted.
