2024 has pulled in unprecedented levels of AI investment. What does this mean for AI startups?

TLDR: The rewards have increased, but so have the number of players.

Where did AI come from? It’s been years in the making.

The rapid rise of artificial intelligence has revolutionized the way we use technology in our everyday lives. Informally referred to as “the Golden Age of Machine learning,” the growth of Artificial Intelligence started in 2010 when GPU advancements allowed for processing of large datasets with unprecedented speeds and accuracy. 

The release of the paper, “​​Attention is All You Need,” by Google in 2017 introduced the Transformer model (represents the “T” in GPT) which significantly improved and simplified AI training.

Five years later, OpenAI’s ChatGPT served as a fuse, presenting the potential of GPT in a novel and intuitive manner. The following success forced companies to develop AI technologies to rapidly accelerate their efforts and ignited a race between tech companies. Microsoft, Google, and Meta quickly responded by creating their own AI-driven tools. Microsoft invested heavily in OpenAI, integrating GPT models into their Office and Azure suite, while Google developed Bard, and Meta released the LLaMA (Large Language Model Meta AI) models.

Venture Capital isn’t getting tired of AI.

Excitement has been building since the launch of ChatGBT in 2022, fueling a venture comeback with startups raising $33.3 Billion in Q1 2024 and $42.9 Billion in Q2 2024. 

Elon Musk added to the fervor when he succeeded in raising $6 Billion Series B last May for his own artificial intelligence startup, xAI.

LPs and corporations aren’t slowing.

Fund formation amounted to $32.1 Billion in Q2 2024,  – a promising outlook for the continuation of investment into the AI space. 

To add, corporations like Amazon, Dropbox, Google and Qualcomm have launched AI-specific investment funds, reflecting a growing trend of corporations backing AI start-ups. Most notably, Cisco launched a $1 Billion investment fund in June.

Is this level of investment good news or bad news for AI startups?

The large increase of capital being deployed is a golden opportunity, but it also has intensified competition, forcing incumbents to navigate a much more complex funding landscape. The influx of funds has pushed valuations back up to the inflated levels of 2021/2022 and the resulting frenzy that came after oversaturated the market. As investors become more selective and with high valuations returning, the pressure is on for AI startups.

In this environment, the success of broad AI solutions becomes much less likely. 

Our unofficial recommendation for AI startups is to focus on industry-specific applications that address concrete business challenges, rather than attempting to compete with OpenAI or Anthropic.

What can slow down this funding wave?

Regulatory scrutiny on AI and big tech is growing as governments hone in on the industry. A specific focus on antitrust policies could impact the acquisition landscape, potentially slowing down exit opportunities and dampening VC confidence in new investments. This could affect the amount of money they’re willing to pour into AI. Inflated valuations could also start to negatively impact funding. Expensive rounds may finally prove too risky for VCs to participate in, further challenging growth in the sector.

Georgia Tech AI Startup Spotlight: AENIA AI - founded by Navid Ehyaee

AENIA.AI has built out artificial intelligence-powered software to automate tasks in small to medium-sized medical clinics. Currently in pilot testing at a clinic, AENIA has discovered a grudging task in a niche space and applied its technology to solve the problem. Software-based AI, like AENIA, requires minimal capital to deploy and can be scaled at a fast rate. We’re excited to see how AENIA progresses through its pilot program and more.

Thanks for reading this far. If you’re interested in joining GTVC or being part of one of our events, please reach out to Xander Coles at [email protected]

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