Amid a funding fall in the startup landscape this year, generative artificial intelligence (GenAI) startups are rewriting the narrative by securing unprecedented funding, according to data and analytics company GlobalData.

The total venture capital funding for startups in 2023 stands at $224bn (as of 8 December), marking a 65% decline from the record-breaking $655bn in 2021.

However, the GenAI sector has defied the trend, witnessing a remarkable 110% surge in venture capital, accumulating a staggering $10bn in investment, according to GlobalData.

Adarsh Jain director of the financial markets team at GlobalData, said, “The slowdown in startup funding, referred to as ‘startup winter’, was attributed to escalating interest rates, recessionary risks, and a challenging macro environment.”

“Despite these challenges, the substantial funding acquired by GenAI startups underscores the groundbreaking nature of the technology, its widespread applicability, and its transformative potential across various sectors and industries.”

Breaking down the funding landscape, GenAI startups in the US have dominated with a 75% share, securing $16bn since 2018.

Following closely are startups in Israel, Germany, France, the UK, and China, contributing an additional 15% to the share. Early-stage startups have led the way, constituting 40% of all deal volumes, followed by seed-stage startups at 37%, signifying a potential dominance of GenAI startups in the startup funding arena.

Jain continued, “GenAI startups are poised to remain attractive investment targets in 2024 and beyond, driven by the technology’s robust foundations. Patent activity in GenAI has registered an 85% compound annual growth rate over the last five years, according to GlobalData’s patent analytics.

“Moreover, companies are aggressively hiring talent in the GenAI space, as highlighted by GlobalData Job Analytics, with a 16 fold increase in GenAI mentions in filing documents.”

Investors are displaying heightened interest with increased valuations for companies focusing on GenAI capabilities. For instance, Google witnessed a 5% surge in share price following the announcement of its latest artificial intelligence model, Gemini, which claims to outperform OpenAI’s GPT-3.5 model.

The portfolio of companies designated as AI Leaders has consistently outperformed AI Losers across sectors, based on GlobalData’s proprietary thematic scorecard since the launch of ChatGPT in November 2022.

Jain added, “The versatility of GenAI, applied to solve diverse challenges, is a compelling reason to invest significantly in this technology. Notable examples include Sarvam AI from India securing $41m to develop GenAI solutions for the country’s multitude of languages, Cradle in the Netherlands using GenAI to aid scientists in designing and engineering proteins, and Assembly AI, which raised $50m in November 2023, leveraging GenAI for building Speech AI models using voice data.”

Several noteworthy startups secured funding in 2023, including Tomorrow.io, raising $69m for building the world’s first weather and climate generative AI; Vectara, securing $29m to develop a GenAI conversational search platform; and Anthropic, raising a substantial $450m to ensure safe, reliable, and interpretable GenAI solutions.

Jain concluded, “GenAI stands out as one of the few technological innovations to have a profound impact across a broad spectrum of industries in a short period, and its fundamental strengths position it to continue attracting investments well into 2024 and beyond.”

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By GlobalData