GenAI startups defy ‘startup winter’, raise record $10 billion in 2023

Despite a significant drop in overall startup funding in 2023, Generative AI (GenAI) startups have bucked the trend, raising a record $10 billion, according to a report by GlobalData. This marks a 110% increase compared to 2021, even as total venture capital funding fell by 65% to $224 billion.

The report attributes the slowdown in startup funding, termed ‘startup winter’, to rising interest rates, recessionary risks, and a challenging macro environment. However, GenAI startups have managed to thrive, reflecting the transformative potential of the technology across various sectors and industries.

Since 2018, US-based GenAI startups have secured the majority of the funding, accounting for 75% ($16 billion), with Israel, Germany, France, the UK, and China contributing an additional 15%. Early-stage startups made up 40% of all deal volumes, indicating that first-time funding of GenAI startups dominated startup funding.

The report predicts that GenAI startups will continue to attract investment in 2024 and beyond, driven by solid factors such as accelerating startup funding, an 85% CAGR in patenting activity over the last five years, and aggressive hiring of GenAI talent across sectors.

Investors are also responding positively, with higher valuations for companies focused on GenAI capabilities. For instance, Google’s share price rose 5% a day after the company announced its latest artificial intelligence model, Gemini.

Notable GenAI startups that raised funding in 2023 include Sarvam AI from India, which secured $41 million to build GenAI solutions for India’s multitude of languages, and Cradle from the Netherlands, which uses GenAI to help scientists design and engineer proteins and secured $24 million in funding.

In conclusion, GenAI is one of the few technology innovations to have broadly impacted industries in a short time and is well-positioned to continue attracting investments well into 2024 and beyond.

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