By Mark McSherry
Venture capital funding for generative AI startups in 2024 is poised to exceed the records of 2023, according to a report by S&P Global.
In the first three quarters of this year, GenAI startups secured over $20 billion, according to S&P Global Market Intelligence data.
That puts 2024 on track to exceed the 2023 total of $22.7 billion.
“As in the previous year, this year’s funding surge was significantly driven by billion-dollar mega-rounds from prominent players such as OpenAI LLC and Anthropic PBC,” said the report.
“The second quarter was propelled by X.AI Corp.’s $6 billion funding deal, while the third quarter was led by Sam Altman’s OpenAI securing $6.6 billion.
“The momentum will likely continue, with Anthropic, which already raised $8.8 billion, reportedly in discussions for another fundraising round.
“The second and third quarters were equally strong and represented the highest quarterly funding total since the first quarter of 2023, which was marked by Microsoft Corp.’s $10 billion investment in OpenAI …
“The competition in the frontier foundation model space is intense with new entrants this year such as Elon Musk’s X.AI and Ilya Sutskever’s Safe Superintelligence Inc., with the latter raising $1 billion. In the US and Europe, there are now at least six frontier foundation models to choose from and more are coming.
“Investor interest in funding new ventures within the GenAI sector remains robust, particularly when led by experienced entrepreneurs.
“However, building a foundation model from the ground up is capital intensive and the competitive landscape is daunting, as deep-pocketed tech juggernauts such as Alphabet Inc. and Meta Platforms Inc. have access to significantly greater resources than more focused startups.
“Although many of these startups are incurring substantial cash burn, investors are optimistic about the pace of revenue growth and the opportunity if GenAI emerges as the next transformative technology platform. According to a report from Stripe Inc., cited by the Financial Times of London, GenAI companies reached $30 million in revenue quicker than similar companies in other technology shifts, including software as a service.”
Companies competing in the foundation model arena are investing significantly to develop the next iteration of GenAI models to escape commoditization. Having the leading model will enable them to capture a substantial share of a rapidly expanding market, the ultimate size of which is impossible to predict. As the competition intensifies, some disheartened players will likely exit the race or consolidate.
“This is a game of survival, if you are not early to build the moat around you, you are going to be left behind,” Arun Bharath, chief investment officer at Bel Air Investment Advisors, said in an interview with S&P Global Market intelligence.