Generative AI demos cannot become sustainable ARR.
Author | Kyle Wiggers
Advertisement
Compiled | Wan ChenEditor | Jingyu
Original text | “Investors are growing increasingly weary of AI｜TechCrunch”
last year,Generative AI Investment surged, but also began to slow down, and the artificial intelligence industry is facing a reckoning.
The Stanford Institute for Human-Centered AI (HAI), co-led by Li Feifei, stated in a new report that,Global investment in artificial intelligence falls for second consecutive year in 2023.
Advertisement
Citing data from market intelligence firm Quid, the report points out that both private investment (that is, venture capital investment in startups) and corporate investment (mergers and acquisitions) in the artificial intelligence industry will trend downward in 2023 compared with the previous year.
AI-related mergers and acquisitions (blue bars in the chart above) will fall from $117.16 billion in 2022 to $80.61 billion in 2023, a decrease of 31.2%;
Private investment (green bars in the chart above) fell from $103.4 billion to $95.99 billion;
Taking into account minority transactions and public offerings, total AI investment fell to $189.2 billion last year, down 20% from 2022.
Of course, some AI companies continue to attract significant funding, such as Amazon's recent multi-billion-dollar investment in Anthropic and Microsoft's $650 million “acquisition” of top talent at Inflection AI (if not the company itself).
While overall investment volume is declining, the amount of financing received is growing. The Stanford HAI report shows that more artificial intelligence companies have received investment than ever before. In 2023, 1,812 artificial intelligence startups announced that they have received financing, an increase of 40.6% from 2022.
01.Capital Intensive Model Game Over
what happened?
Gartner analyst John-David Lovelock said he believesWith Anthropic,OpenAI Wait for the players in the first tier to take the dominant position,AI The scope of investment is “spreading out”.
The above-mentioned analyst said: “The number of billions of dollars of investment has slowed down and is almost over”;Hot money is flowing in a new direction——AI applicationhe said, “Large models require significant investment, but the market is now more influenced by technology companies that will leverage existing artificial intelligence products, services and products to build new products.”
Greylock partner Seth Rosenberg believes,There is already little interest in funding “a slew of new players” in artificial intelligence. “In the early stages of this cycle, investment in basic models is very capital intensive, compared to the lower capital required for AI applications and agents, which may be the reason for the decline in absolute dollar funding.”
Behind the decline in overall financing amount, further answers are needed:How can large models be monetized??
Umesh Padval, managing director of Thomvest Ventures, attributed the overall reduction in investment in artificial intelligence to lower-than-expected growth. He says initial enthusiasm has given way to reality: AI faces challenges — some technical, some go-to-market — that will take years to solve and fully overcome.
In his view: “The slowdown in investment in artificial intelligence reflects the recognition that we are still in the early stages of exploring the development of AI technology and its application in various industries.While the long-term market potential remains significant, initial enthusiasm has been tempered by the complexities and challenges of rolling out AI technology in practical applications… This indicates a more mature and discerning investment environment. “
Aaron Fleishman, a partner at Tola Capital, also said that investors may be starting to realize that they rely too much on “projected exponential growth” to justify the high valuations of AI startups. Take the company Stability AI as an example.It was valued at over $1 billion at the end of 2022, but had revenue of just $11 million in 2023 and operating expenses of $153 million.
“The performance trajectory of companies like Stability AI may be a sign of challenges ahead, with investors taking a more cautious approach when evaluating AI investments compared to a year ago. Over the past year, some of the biggest startups in AI have The rapid rise and fall of AI demonstrates the need for investors to refine and strengthen their views and understanding of the AI value chain and potential risks.”
02.“Prudent” becomesNextSynonymous with investing in AI
Venture capital firms invested $25.87 billion in artificial intelligence startups globally in the first quarter of 2024, up from $21.69 billion in the first quarter of 2023, according to a report compiled by PitchBook for TechCrunch.
But investments in the first quarter of 2024 only involved 1,545 deals, compared with 1,909 in the first quarter of 2023. Meanwhile, M&A deals slowed from 195 in the first quarter of 2023 to 176 in the first quarter of 2024.
Although overall investment in artificial intelligence has declined, generative artificial intelligence is still the “hope of the whole village”.
According to a report by Stanford University's HAI, investment in generative artificial intelligence startups will reach $25.2 billion in 2023, almost 9 times the investment in 2022 and about 30 times the investment in 2019. Generative AI will account for more than a quarter of all AI-related investments in 2023.
However, Samir Kumar, co-founder of Touring Capital, believes that the boom period will not last. “We will evaluate soonWhether generative AI can deliver promised efficiency gains at scale and drive revenue growth through AI-integrated products and services,” Kumar said.“If these expected milestones are not achieved and remain in the experimental phase, then 'experimental run rate' revenue may not translate into sustainable annual recurring revenue.”
As Kumar noted, several prominent venture capital firms, including Meritech Capital (whose investments include Facebook and Salesforce), TCV, General Atlantic and Blackstone, have so far shied away from the development of generative AI.
Business enterprises, the largest customers of generative AI, also appear increasingly skeptical of the technology’s promises and whether it can deliver on those promises. In a survey by the Boston Consulting Group,About half of the respondents, all executives, said they don’t expect big productivity gains from generative AI, and they worry about the potential for bugs and data breaches in generative AI tools.
But whether skepticism, and the resulting financial downturn, is a bad thing depends on each person's perspective.
Padval believes that the artificial intelligence industry is undergoing “necessary” adjustments to cope with the “frothy investment frenzy.” And, he believes there is a light at the end of the tunnel.
He said: “In 2024, we will shift to a more sustainable and disciplined pace. We expect this stable investment pace to continue through the remainder of the year… While the investment pace may adjust periodically, the overall trajectory of AI investment remains Strong and expected to continue to grow.”