Venture capitalists are paying huge premiums to invest in AI startups, despite the limited revenue they generate. The competition between investors is fueling valuations, even in cases where startups have little to show by way of income. US-based Anthropic, which is developing an AI algorithm that allows for self-teaching, recently secured $450m in funding at a valuation of $4.1bn. Other US generative AI startups such as Adept, Inflection AI, Pinecone, and Runway have also raised major funding in recent months. Meanwhile, French-based Mistral, founded by former research scientists from Google DeepMind and Facebook’s Meta, is raising support and is being dubbed Europe’s OpenAI.
AI video generator Synthesia, which was founded in 2017, is anticipated to become a billion-dollar firm. While text-to-speech startup ElevenLabs, was only established last year but set to raise at a $100m valuation. German-based Aleph Alpha, a company that produces large language models and develops natural language processing, is also in discussions to raise major funding.
Startups earned $24.9bn in the first three months of 2023, a rise from $23.4bn in the same period last year. VC funding to generative AI startups specifically topped $1.7bn in Q1 2023. Venture capitalists are looking to invest in the top players, such as OpenAI and Anthropic, on the view that they’ll provide services like cloud providers.
However, venture capitalists are also thinking about the risks associated with AI, with many of the field’s leading names warning that AI could pose a threat to humanity. Investors do not want to invest in AI that’s going to wipe out human beings. Europe’s AI research prowess overtakes that of the US, with researchers from the EU and UK contributing to 15% of all AI journal publications from 2010 to 2021, compared to the US’ 10%, according to a report from Stanford University. Investors are looking at early-stage AI startups as they become more attractive than more established sectors.
