Generative AI race brings mass shift in tech investment outlook for 2023
Although the economic outlook was less than favourable for 2023, with tech valuations suffering in both public and private markets, January has brought a wave of excitement for the sector: ChatGPT. The Generative AI platform has continuously dominated headlines, the sheer impact of the technological innovation will not only set a new standard for the world of tech and AI but will redefine the way we interact with technology based on the broad applications demonstrated by users around the world.
According to Claire Trachet, M&A expert and CEO/Founder of business advisory Trachet, OpenAI has impressed the technology and investment communities with its successful AI offerings and the substantial $10 billion support from Microsoft Corporation – a deal that would value the AI lab at a staggering $29 billion. As a result, an increasing number of both large and small companies are competing to surpass the startup in the rapidly growing AI industry, and with it bringing a flurry of M&A and investment into the sector.
Less than quarter into the year, AI companies have already raised or are in the process of raising more than $700 million, excluding the Microsoft – Open AI deal. Between 2020 and 2022, generative AI – which uses refined computer programs to generate videos, art, conversations, and other works – has seen a 425% increase in VC investments.
In addition, a list cultivated by Homebrew AI Club – a group that acts as a meeting place for AI workers – has listed over 150 startups in the space in talks to complete a deal. Last week, Google announced a deal for stake of around 10% of Anthropic – founded by ex OpenAI developers and creators of Claude, ChatGPT’s main contender. The new funding will value the San Francisco-based company at around $5 billion – a real eye-turner for the tech investment community. Serving as testament to this, Bratin Saha, vice president of machine learning and AI services at Amazon said, “there’s a lot of innovation yet to be done here and we will be partnering with a lot of companies to enable that innovation for our customers.”
Although market conditions have meant startups have had to shift their operating model and adjust to a challenging funding landscape, technological innovation remains incredibly attractive to investors and overrules the economic principles of a recession. Founders should take this shift as a clear indicator that optionality will increase throughout the year – being deal ready is crucial to leverage the opportunities that will arise.
Tech startup expert, Claire Trachet CEO/Founder of leading business advisory, Trachet, comments on ChatGPT and the change in investor sentiment which this will bear:
“ChatGPT and other advanced AI technologies have already sparked innovation and investment in the field – however, the recent attention brought forth by the international community – outside of tech – will shed a new light on the gloomy path to recovery laid out for this year.
“As these technologies continue to evolve and mature, it’s likely that they will drive even more innovation and investment in the future. Companies and investors are recognizing the tremendous potential of AI to transform a wide range of industries and are eager to capitalize on this opportunity.
“There is now a growing number of investors who are sat on a dry powder pile having deterred investments in 2022. This means there are significant opportunities on the horizon, and now is the moment to prepare and get deal ready as optionality will increase in H2 of this year.
“Indicators suggest early-stage startups will have an advantage in this current market, as growth investors are seeking to invest in earlier stages, from seed to series A, with smaller amounts of capital to sustain their businesses. These startups have a lower burn rate, giving them the potential to come out as dominant competitors if they can withstand the challenges.”
