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GenAI start-ups score record investments in 2023

Simnikiwe Mzekandaba
By Simnikiwe Mzekandaba, IT in government editor
Johannesburg, 12 Dec 2023
Generative AI start-ups raised $10 billion in venture capital in 2023, according to GlobalData.
Generative AI start-ups raised $10 billion in venture capital in 2023, according to GlobalData.

While start-up funding took a dip in 2023, the same can’t be said about generative artificial intelligence (AI) start-ups, which attracted the lion’s share of venture capital (VC) investments.

This is based on insights from market research firm GlobalData, which show total VC funding for start-ups reached $224 billion as at 8 December. This is a 65% dip since 2021, when start-ups raised $655 billion.

However, generative AI (GenAI) start-ups raised $10 billion in venture capital, representing a 110% rise compared to $4.7 billion in 2021, says GlobalData.

Adarsh Jain, director of the financial markets team at GlobalData, comments: “The slowdown in start-up funding over the last couple of years − dubbed ‘start-up winter’ − was driven by rising interest rates, recessionary risks and the overall tough macro environment.

“Despite these challenges, GenAI start-ups raising record sums underscores the breakthrough nature of the technology, its widespread applicability and its power to transform entire sectors and industries.”

GlobalData notes that since the beginning of 2018, GenAI start-ups in the US have secured most of the funding with a 75% share ($16 billion), followed by Israel, Germany, France, the UK and China – which added another 15% share.

Early-stage start-ups formed 40% of all deal volumes, followed by seed stage with 37% of all deal volumes − meaning first-time funding of GenAI start-ups dominated start-up funding.

Jain notes: “GenAI start-ups are expected to continue to attract investment in 2024 and beyond because the technology is underpinned by solid drivers. For instance, apart from accelerating start-up funding, patenting activity in GenAI registered 85% CAGR over the last five years, as per GlobalData’s patent analytics.

“Companies across sectors are ramping up human capital by aggressively hiring talent around GenAI, reveals GlobalData job analytics. Companies are getting more vocal about their GenAI strategy in their filing documents, with 16x more mentions. From drug-development to spaceships, there is no sector which has not been touched by GenAI.”

The market research firm reveals investors are also responding with higher valuations for companies focused on GenAI capabilities. For instance, Google’s share price rose 5% a day after the company announced Gemini, its latest AI model.

“One reason to bet big on GenAI is the general-purpose nature of the technology which start-ups are using to solve diverse challenges,” says Jain.

“GenAI is one of the few technology innovations to have impacted the broad spectrum of industries in such a short time and is fundamentally well-placed to continue attracting investments well into 2024 and beyond.”

The Boston Consulting Group estimates GenAI will be a $60 billion global market by 2025, accounting for 30% of the total addressable market for AI in general.

In January, Microsoft announced a “multibillion-dollar” investment in OpenAI, the San Francisco-based start-up company that designed ChatGPT. The software giant made an initial $1 billion investment in OpenAI in 2019 and later in 2021.

According to GlobalData, other start-ups that raised funding in 2023 include Tomorrow.io, which raised $69 million to help build the world’s first weather and climate GenAI. Vectara raised $29 million to build a GenAI conversational search platform. Anthropic raised $450 million to ensure safe, reliable and interpretable GenAI solutions.

Indian start-up Sarvam AI recently secured $41 million funding, a boost to its target of building GenAI solutions for India’s multitude of languages. Assembly AI, which raised $50 million in November, is leveraging GenAI to build a speech AI model using voice data.

On the local front, Lelapa AI reportedly raised $2.5 million in funding, backed by the Mozilla Foundation and Atlantica Ventures.

Lelapa AI last month launched the beta version of its Vulavula natural language model solution. Vulavula transcribes and analyses English, Afrikaans, isiZulu and Sesotho using AI.

Speaking to ITWeb earlier this year, Lelapa AI co-founder and CEO Pelonomi Moiloa explained the start-up was founded out of the need to address how AI can be used for solutions and applications from an African lens.

“Vulavula is a language technology-as-a-service, focusing on under-represented languages (specifically South African languages), through text and voice technologies,” she said at the time.

“Despite 90% of the internet being in English, only one in 10 South Africans speak English at home. Languages represent culture and people, and it’s imperative that people from across the world are supported by technology.”

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