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VCs are skeptical whether the investments in AI startups would fetch satisfactory returns, despite acknowledging the untapped potential and AI's ability to impact many other sectors.
Emergence Capital's founder Gordon Ritter is one of the skeptics taking a measured approach to investing in AI startups.
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The recent influx of generative AI startups has piqued the interest of investors, who appear to be pouring money into the sector despite just emerging from a period of inflated valuations and free-flowing money.
An undisclosed veteran investor told the FT that "[AI] companies are extremely overvalued, and the only justifiable investment thesis is to get in incredibly early. Otherwise, you're only buying in because of FOMO."
Andreessen Horowitz led over $200M in funding into Character.ai, while Microsoft committed $10B to OpenAI.
AI startups require substantial capital to build machine learning systems and source computing power.
Many investors are holding out in hopes of backing a "killer app with clear commercial potential."
Venture funding for Series B stage U.S. startups is continuing its downward trajectory, with the current quarter of 2023 on track to post the lowest quarterly totals since the last three years.
The slump started in Q1 of 2022, with funding declining by 60% YoY in H2 2022.
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Series B stage startups in the U.S. have raked in $3.5B in venture funding in the current quarter to date.
In Q4 2022, $6B was invested in Series B stages.
So far this quarter, only six mega funding rounds of over $100M have closed, a stark contrast to the 90 such rounds closed in the same period a year ago.
Notable funding rounds closed this year include battery startup Our Next Energy's $300M funding, genetic medicine biotech Aera Therapeutics's $193M funding, and genetic design startup Asimov's $175M round.
In the Series B stages, fintech, web3, and consumer product startups have witnessed the largest pullback.
AI startup Inflection, founded by DeepMind's co-founder Mustafa Suleyman and LinkedIn co-founder Reid Hoffman, is planning to raise between $500M and $675M in fresh funding.
CEO Suleyman told FT, "Ultimately if we decide to raise, we will raise the right amount of capital to achieve our company goals."
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The firm is building an AI-powered personal chatbot for the web.
Its consumer product is currently in testing, with the firm aiming to launch it "very soon."
Inflection is using Microsoft's Azure cloud computing infrastructure to train its AI models.
It last raised a $225M funding round in May 2022 and is backed by VC firm Greylock Partners, where Hoffman is a partner.
Inflection is reportedly raising fresh funding to boost its commercialization efforts.
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Hoffman stepped down from the board of OpenAI to avoid a potential conflict of interest with other generative AI startups that he aims to invest in.
The U.K. government earmarked £250M ($299.8M) to back AI, quantum technology, and biology engineering startups in the nation.
The investment is part of a larger $445M (£370M) plan launched by the U.K.'s Prime Minister Rishi Sunak and finance minister Jeremy Hunt as they set out to make the nation a "science and technology superpower" by 2030.
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The plan includes £10M ($12M) earmarked for the U.K. Innovation and Science Seed fund.
An additional £50M ($60M) is set aside for co-investment opportunities.
The new plan attempts to offset the criticism leveled at the U.K. government for policy decisions that hampered the country's startup ecosystem.
The plan includes measures to increase private investment in the science and tech sector, ease regulations, and attract talent.
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European nations Germany and France previously announced their own €1B ($1.07B) and €500M ($533M) funds, respectively, to back deep-tech and climate-tech startups.
Data compiled by Bloomberg shows that 70 SPACs are potentially looking at liquidation if they are unable to acquire target companies within the next 30 days.
These SPACs collectively have over $18B in cash. Some are expected to close operations and return funds to investors, while several are seeking extensions. Many sponsors are ready to pay additional fees to extend the SPACs' deadlines.
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Sponsors of GigCapital5, which is close to completing its merger deal with QT Imaging, are ready to pay investors $125,000 a month for a six-month extension.
So far this year, 30 sponsors have closed operations, and 86 have sought extensions, per Boardroom Alpha.
SPAC listings' popularity waned in recent times following strict regulatory scrutiny measures imposed by the SEC.
Meanwhile, several companies that went public via SPAC mergers are on the brink of going bankrupt or getting acquired at rock-bottom prices.
Cloud-based software company Salesforce's venture division, Salesforce Ventures, announced a $250M fund to back enterprise-focused generative AI startups.
The announcement came as Salesforce launched its own generative AI platform called Einstein GPT.
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Salesforce announced the integration of OpenAI's ChatGPT into its workplace communication platform Slack.
Salesforce Ventures has already invested in AI-powered search engine You.com, chatbot developer Anthropic, natural language processing model provider Cohere, and relationship management platform Hearth.AI.
Its latest fund adds to its existing $50M AI-focused fund launched in 2017.
Salesforce Ventures has launched several sector-specific funds over the years.