Artificial intelligence Startups

After A Lot Of Hype, (Useful) AI May Finally Be Here

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Artificial intelligence has once again become a hot buzzword in tech, even somewhat knocking off the malaise the venture capital markets have been under in the last several quarters.

However, this time around it may have real staying power as advancements in generative AI seem to be riding a wave of excitement some have compared to what cloud computing saw nearly two decades ago.

“About two years ago, we realized (AI) had crossed a threshold,” said Dave Rogenmoser, co-founder and CEO of Austin, Texas-based AI content platform Jasper. “It started producing better end results.”

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Last month was filled with news about big rounds at bigger valuations by generative AI startups — basically companies that use AI to produce content.

London-based AI-driven visual art startup Stability AI became a unicorn after locking up a $101 million raise. Rogenmoser’s Jasper announced a $125 million Series A led by Insight Partners at a $1.5 billion valuation. Sam Altman’s AI powerhouse OpenAI led an investment in San Francisco-based AI video and audio editing tool Descript at a $500 million-plus valuation, per a report.

Even Google got into the act, as it was reportedly in talks to invest at least $200 million inToronto-based artificial intelligence startup Cohere.

Those raises were against the backdrop of a massive venture capital pullback that has shown investors are wary of investing in such large rounds — but it looks like concern has turned into conviction for several reasons when talking about AI.

Finding a place

One reason may be the democratization of AI. Companies like OpenAI, StabilityAI and other open-source companies have created open APIs, allowing companies to more easily harness AI for their applications.

There is also the simple fact that as computer technology has improved, so has AI. While the algorithms have somewhat changed, it’s really been the power of what can be done in the cloud when playing with the data sets that has made AI better and more efficient.

Advancements like OpenAI’s GPT-3, which helps with a variety of natural language tasks, and its text-to-image generator Dall-E 2, have significantly changed the game.

“You have what I call these layer-one companies, like OpenAI and Stability, who have really built out the technology,” Rogenmoser said. “Now you have these layer-two companies like us that sit on top of that.”

It was when Rogenmoser saw the performance and flexibility of GPT-3 that he realized the power AI could bring to the marketing space as every company struggles to provide more substantial content that customers can relate to.

“You really saw what it could do,” he said.

Many did. While AI has helped expand Jasper from just Facebook ads to blogs, social media posts and other marketing copy, others are applying the technology to increase efficiency in a variety of other spaces.

New York-based Lavender uses AI to help salespeople write better emails. San Francisco-based Regie uses it to help go-to-market teams. Y Combinator-backed Pilot AI turns call recordings into structured information that updates the CRM.

“In generative AI you can have a lot of applications,” said Yash Patel, general partner at Telstra Ventures and an AI investor. “I think now you have to look at the usual entry points to investments. You have to find a strong user experience case, a strong utilization case and a really strong proprietary data set behind it.”

Not just for startups

As it becomes easier to make things out of all the preexisting audio files, texts and images through AI, spaces outside of marketing, sales and gaming will be impacted. Sectors in law, health and high-end finance will likely see the introduction of more AI applications.

While Patel agrees there’s a lot of noise around AI right now with every startup wanting to claim they use it, he added it is just becoming another layer of technology every application uses, like AWS or blockchain.

And AI isn’t just for startups: Established companies are also finding use cases for the technology, Patel said. He is currently looking through his portfolio companies to see how they can leverage the new open APIs to improve their own offerings.

“There are just so many use cases,” he added.

The numbers

Based on the rounds announced last month, it’s reasonable to think AI investment has never been higher in the VC world.

That is likely both true and false. It is difficult to get a firm hold on funding to VC-backed startups using AI since so many companies claim the description and it has been a pervasive buzzword for nearly 15 years. It is especially difficult because AI really is not a tech sector, but rather a technology that is used across nearly all industries and verticals.

According to Crunchbase data, total investment to VC-backed startups which fall into the AI sector is actually down from 2021. Last year saw nearly $60 billion invested into startups that use AI in one form or another. So far this year, startups have witnessed only about half that total.

However, that is not a shock considering the different place the market currently is in. Nearly all sectors are down as both traditional VC firms and large growth investors have significantly pulled back on deals.

Those in AI say investment interest is heavy right now despite the down market.

While only recently announcing the round, Jasper actually started to raise money in April and closed the round in July, Rogenmoser said. He believes if he were raising money now he could have raised at a higher valuation if he wanted and is still fielding calls from investors who want to add on — even though the round is closed, he added.

“I think people see how big of a shift this could be,” he said. “It could be as big as the cloud.”

Perhaps, unlike previous buzzwords like Web3, investors are seeing a true, more unambiguous market develop in AI. That increasing investment interest undoubtedly has led to what is a seemingly endless array of startups being founded daily which use AI to help with everything from mental health to architecture.

What’s next?

With huge tech giants like Google and Amazon already investing heavily into AI initiatives, it’s fair to wonder if a wave of consolidation could be on the way with so many affordable startups available.

However, those who know AI said they expect more startups, and even an evolution beyond the heavy AI capabilities of companies like Stability and OpenAI, as open-source competitors continue to spring up.

“I think in the next 12 months you’ll see this rapidly evolve and advance,” Rogenmoser said.

Illustration: Dom Guzman


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