AI wrapped - A Year in Review

Since November of 2022, the release of ChatGPT has sent the startup and investor community into an excited frenzy, during which money poured into the space at a dizzying pace. A year later, doubts around the transience of large language models and its application to industries broadly have given way to a precipitated landscape of gen AI companies that is already showing value creation. While it’s not clear yet if large language models are the promised revolutionary change akin to that of the calculator, internet, PC, or mobile, this year’s market activities in AI has shown that AI is starting to become an industry with its own value capture. Here we explore a quick rewind (for you Spotify listeners IYKYK), a year in review of AI startups and the tech industry.

Major Corporate Activities - corporate activities in participating in large startup funding rounds has largely contributed to the increased round size for AI funding in 2023. Large concentrations of these rounds focus on companies in the infrastructure layer.?

1. Inflection - (LLM algorithm developer) 1.3bn round led by Microsoft and Nvidia?
2. Anthropic (AI safety and research) - 450M round led by Spark Capital with Google and Salesforce.?
3. Cohere (model observability) - 270M round led by Inovia with Nvidia, Salesforce and Oracle.?
4. Typeface (customizable AI model) - 100M round led by Salesforce, Alphabet and Microsoft’s venture arms?
5. Celestial (edge computing) - 100M round led by IAG with Merck, Samsung and Koch’s venture arms

Related statistics: 5 out of 7 newly minted unicorns in Q2’23 were generative AI companies.

Major Acquisitions- This year AI ballooned from a 136.6B market cap in 2022 to an estimated industry market cap of 196.6B and projected to be 2.6 trillion by 2030. Below we look at some acquisitions that happened in 2023, where the largest startups acquisitions were on average less than five years old.?

1. MosaicML acquired 1.3B to Databricks (LLM)
2. Casetext acquired 650M by Thompson Reuters Corp (legal, LLM)
3. Neeva acquired 150M by Google (enterprise search)
4. WaveOne acquired by Apple (algorithm compression, streaming)
5. Photomath acquired by Google (computer vision, education)
6. LeapYear Technologies acquired 62M by Snowflake (privacy, energy)

Related statistics: In contrast to frozen IPO markets and depressed public markets, M&A exits in AI increased 13% quarter over quarter, whereas the rest of the market experienced moderate decline in 2023.

Since starting in 2019, Tau has always strongly believed in our thesis that AI is going to drive the next wave of technology across different verticals. While big tech and larger startups have dominated the majority of value capture at the early innings of generative AI wave, we believe that this provides a new platform for “traditional” and newer types of AI models to be distributed across use cases. Startups that are nimble and can move fast at adopting breakthroughs in new algorithms have a chance to disrupt the current status quo at the compute and application layer.?

Primary author of this article is Sharon Huang. Originally published on “Data Driven Investor.” ? These are purposely short articles focused on practical insights (we call it gl;dr — good length; did read) and meant as a conversation starter. See here for other such articles. If this article had useful insights for you, comment away and/or give a like on the article and on the Tau Ventures’ LinkedIn page, with due thanks for supporting our work. All opinions expressed here are from the author(s).