AI Funding Stays Strong Despite Few Billion-Dollar Rounds

The slowdown some predicted for AI funding did not play out in the first quarter.

Venture funding to AI-related startups actually increased in Q1 2024 compared to Q4 2023, Crunchbase data shows. The first quarter saw $12.2 billion invested in venture-backed AI startups in 1,166 deals. The dollar number represents a modest 4% uptick from last year’s final quarter, which saw $11.7 billion go to similar startups in 1,072 deals.

It is, however, a 25% drop from the $16.3 billion seen in Q1 last year, although the important caveat there is that was the quarter of OpenAI’s epic $10 billion-plus round from Microsoft — the biggest of several huge rounds last year that put AI funding into hyperdrive.

Big rounds down

In fact, last quarter saw only one $1 billion round, whereas there were several last year that helped push AI funding to never-seen-before levels. In Q1 there were only three rounds of more than $320 million. While that is still impressive, it seemed like such rounds were being raised every week by an AI startup just last summer as the sector saw some of the biggest raises of 2023.

The three biggest AI-related rounds of the quarter were:

In February, China’s artificial intelligence startup Moonshot AI raised more than $1 billion in a funding round led by the Alibaba Group Holding and HongShan, formerly Sequoia Capital China.
That same month, Sunnyvale, California-based Figure — which is creating AI-enhanced robots — reportedly raised a huge $675 million round at a pre-money valuation of roughly $2 billion. Big-name investors in the round include Jeff Bezos’ Explore Investments and Nvidia among others. The company is developing AI-enhanced robots that it hopes will be able to perform dangerous jobs and alleviate labor shortages.
In March, China-based MiniMax, which is developing AI tech to convert text into visual and audio components, raised a $600 million Series B.

Regardless of the possible big-round slowdown, those writing checks to startups are seeing significant interest in the still evolving market.

“AI is real, just like SaaS or e-commerce,” said Michael Marks, who invests in AI/ML startups and is founding managing partner at San Francisco-based Celesta Capital.

Marks, who sits on the board of AI startups including Whiterabbit.ai, H2O.ai and Quartic.ai, said while valuations have fluctuated in the AI space, startups that apply artificial intelligence to specific industries or problems — examples being video surveillance, insurance or healthcare — are continuing to see investor interest, as well as hardware plays.

In fact, recent deals show just how investors are still willing to put a premium on some companies in the space. This month, it was reported AI search startup Perplexity AI would seek another $250 million-plus in funding at a valuation between $2.5 billion and $3 billion the same day the company officially announced a $62.7 million round that reportedly values the company at more than $1 billion. It was only in January that the company raised a $73.6 million Series B that valued it at $520 million.

What’s next

Venture capitalists and strategics may also be excited about what they see on the public market. While everyone has noted Nvidia’s surging stock price, Astera Labs, a developer of data center connectivity technology with use cases in generative AI, went public at the very end of the quarter and has watched its shares soar

Such activity likely will only increase investors’ appetite for AI, as an active exit market only creates more enthusiasm.

However, not all news has been great for AI startups recently. Just this month, troubled artificial intelligence startup Stability AI — which raised a $101 million round led by Coatue, Lightspeed Venture Partners and O’Shaughnessy Ventures in 2022 — laid off 10% of its workforce, per a report. Another AI startup, Tome, which has developed a generative AI presentation tool launched a couple of years ago, announced it had let go of about 20% of its nearly 60 people.

It’s impossible to say if those layoffs could be a harbinger of a slowdown in AI, but such moves can be caused by an inability to get secure funding. However, based on what the past year-plus has shown, it seems unlikely investors are done opening their checkbooks for AI-related tech.