More on AI Venture Funding

Last week, I wrote about the whales-and-minnows pattern in 2023 AI venture funding. A picture is worth a thousand words, so here is the same content in a chart.

Repeating the key points:

• Seed and pre-seed funding in 2023 remained about the same as in 2021
• Early venture funding (A and B rounds) declined slightly
• Middle and late venture funding collapsed
• Corporate and “other” venture funding grew > 400%

Ten startups landed half of all the middle and late-stage AI venture funding:

• Metropolis
• Databricks
• Anthropic
• Lightmatter
• Enflame
• Cohere
• Builder.ai?
• AlphaSense
• Hugging Face
• Skydio

It's tempting to believe that VCs only invested in GenAI last year. But that’s an oversimplification. Anthropic, Cohere, and Hugging Face are GenAI pure plays. The rest are bank shots:?

• Metropolis uses AI to deliver checkout-free parking systems.
• Databricks’ acquisition of Mosaic boosted its “street cred” for GenAI, but the company still generates most of its revenue from its core Lakehouse business.
• Lightmatter and Enflame market high-performance chips.
• Builder.ai offers a workbench for AI rapid app development.
• AlphaSense is a market intelligence platform. The company quickly recognized the potential for GenAI and rapidly incorporated it into its products.
• Skydio markets AI-powered drones.

Investors in mature startups don’t care much about tech. They invest in business plans and a track record of performance. It’s a lot easier to sell your business plan for the next funding round if you beat the numbers in your first few plans.

To illustrate this point, consider the startups that did NOT raise money in 2023. 359 US-based AI startups secured a venture funding round in 2021 but failed to secure new funding in 2023. The top ten (ranked by total funding) are:

• Nuro?
• SambaNova Systems
• Dataminr
• DataRobot
• XtalPi
• Neo4j
• Insitro
• Cerebras Systems
• ThoughtSpot
• Verbit

Startups generally raise money every two years, at most. When they don’t, it’s because they can’t. There can be several reasons, but the most common is failure to deliver on the current plan.