AI venture capital deal volume shrinks 27%: Pitchbook

Dive Brief:

The number of venture capital deals involving generative artificial intelligence declined 27% in the third quarter, following massive investments from big tech companies earlier in the year, according to research firm Pitchbook.
Total deal volume fell to 107 funding rounds in Q3, down from 146 in Q2, according to data provided by Pitchbook. But aggregate deal value increased by about 39% to $6.1 billion, buoyed by Amazon’s $4 billion investment in San Francisco-based AI startup Anthropic.
“I consider interest to remain high and expect funding rounds to continue to get done, but a lot of that was front-loaded into Q1 and Q2 of this year, and some of the leaders in this space are now well capitalized,” Brendan Burke, Pitchbook’s senior emerging tech analyst, said in an interview.

Dive Insight:

Investor interest in AI surged in the wake of Microsoft-backed startup OpenAI’s introduction of ChatGPT in late 2022, according to a report from KPMG.

“AI has quickly become a target sector for VC investors who are looking for their next home run or experiencing the fear-of-missing-out (FOMO), in part because of the multiplier effect that AI offerings could have in driving widespread disruption across industries,” the report said.

Microsoft in January announced a multi-billion-dollar investment deal with OpenAI.

Meanwhile, Google was among the lead investors in a May funding round announced by OpenAI rival Anthropic. The funding round, which also included Salesforce Ventures and Zoom Ventures as investors, raised $450 million. This followed a deal a few months earlier in which Google reportedly invested $300 million in Anthropic for a 10% stake in the company.

Other large AI deals this year include a $1.3 billion investment in Inflection AI. The funding round, announced in June, was led by Microsoft and NVIDIA, among others.

Revenues of generative AI offerings across a broad range of categories are forecast to reach $3.7 billion this year and expand to $36 billion by 2028, according to S&P Global Market Intelligence.

AI-related terms were mentioned a total of 7,358 times in the earnings calls of S&P 500 companies during the second quarter — 4.6 more times than the previous quarter and 3.3 more times than in the fourth quarter of 2022, according to Business Insider.

However, at least some of the initial hype surrounding the technology might be fading, as reported by the Wall Street Journal in August.

Monthly online visitors to ChatGPT decreased by 10% in both June and July after months of growth, the publication reported, citing data from Similarweb.

Jasper, a generative AI writing tool for writers and businesses, saw declining user growth for four consecutive months ending in July. The company conducted a round of layoffs in July and cut revenue projections for this year, after raising $125 million in 2022, the Journal reported.