AI investment reaches highest increase in two years as VC’s seize the moment

credit: Shutterstock
credit: Shutterstock

Venture Capitalists are not turning a blind eye when it comes to Artificial Intelligence (AI) startups as new figures find that investment into the emerging tech is on the rise. 

According to PitchBook’s data, AI investment saw a 47% increase in the US from venture capital funding in Q2. This marks the highest quarterly growth in two years as total funding in AI stood at $55.6bn. 

Furthermore, the total aforementioned Q2 figure is $17.8bn higher than that of the total invested in Q1 this year. 

Casber Wang, partner at Sapphire Ventures, said: “Investors assign a premium to everything AI – the capital intensity of most AI businesses requires outsized funding. 

“As we discover stronger commercial use cases for AI, more AI companies are showing real revenue.”

The injection of capital overturned the recent downward trend in the VC funding market, with investments steadily declining since the record high $97.5bn in the fourth quarter of 2021. The market has been marred by high-interest rates and inflation have damaged investor confidence across the US, and the world.

However, the meteoric rise of generative AI apps and startups such as OpenAI’s ChatGPT have infiltrated various markets globally, having a profound impact on the financial, music, film and many more industries. 

Elon Musk, a Co-Founder of OpenAI, moved onto another AI venture; xAI, which it raised upwards of $6bn from investment which will see a potential new competitor to that of ChatGPT. 

Companies are now looking to replicate the mass popularity of ChatGPT but building out more refined and sophisticated AI models that can be easily integrated. Whilst Microsoft has a foothold on the AI arms race, Apple recently revealed it will be developing its own AI model, and might bring competitor Meta onboard to help

Lars Madsen, Chief Marketing Officer for Basware, commented: “AI’s ability to transform traditional business models means it comes as no surprise that it will remain a source of fascination with investors for the foreseeable future. 

“We haven’t peaked yet and we’ll spend more money on AI in the future than we have done in the past. We’re seeing great return on investment on how much the technology can help automate invoice processes as well as identify suspected fraud; priorities much harder to deliver with manual systems. Investors are coming to the realisation that AI is so much more than ChatGPT.”

“As they scramble to embed AI in the overall business application, the data that drives AI is the key – otherwise you run the risk of getting incorrect outputs and failed investments. Overall, it’s no surprise that specialist firms are seeing investment diverted to them, as VCs seek a greater return on investment.”

However, despite the improved two-year rise, exits remained challenging for the market, as deal values decreased from $37.8bn in Q1 to $23.6bn in Q2.

Across the first half of the year, emerging VC fund managers only raised $37.4bn in commitments, with a lack of proven returns rocking confidence.