No funding winter for AI startups

Dan Siroker, co-founder, and CEO of artificial intelligence startup Rewind AI was in the news for following an unconventional way of fundraising. Rather than doing it quietly, Siroker shared a link to an online form and asked investors to state ‘the highest amount you’re comfortable paying between $200 million and $1 billion’. It was certainly a bold step towards fundraising at a time when the funding winter gripped the startup ecosystem. And guess what! He was inundated with 170 offers. In an email sent to prospective investors on May 9, Siroker stated that NEA had committed $12 million to the company and would lead the round at a $350 million valuation. This shows the enthusiasm towards AI-powered startups when VC & PE funds are sitting on the sidelines. Despite the funding winter, investors across the world remain bullish on AI-based companies. According to leading data and analytics firm GlobalData, around 3,198 AI startups received $52.1 billion funding across 3,396 VC funding deals in 2022. This year, the recent fund raising activity in AI space shows no signs of bearishness.

Interestingly, India is one of the major beneficiaries of such a trend. India ranked fifth in terms of investments received by startups offering AI-based products and services last year, according to Stanford University’s annual AI Index report. AI startups in India received a total funding of $7.73 billion during 2013-2022, making it the sixth leading country with the most AI investments during the period. In 2022, total investments in AI startups stood at $3.24 billion, placing it ahead of South Korea, Germany, Canada and Australia, among others.

So, the momentum is real and industry experts are of the view that the current trend is not likely to change in the coming quarters.Such optimism is driven by a host of factors. Firstly, generative AI has added a new dimension to the AI growth story. ChatGPThas demonstrated that generative AI can effectively transform many sectors. With maximum disruption potential, all eyes are on this new form of AI in the current times. Secondly, Indian technology firms- both IT services and product companies along with startups- have shown the willingness to embrace this new technology.

The early trend indicates that most companies are integrating ChatGPT kind of tools into their daily operations for both internal operations and external clients. Such adoption definitely makes a good case for rising funding activity in the coming years in AI space. While fund houses, companies and customers are showing accelerated adoption, proposed regulations on AI have to be watched keenly for making a final judgement. Countries like the US, India, China are contemplating regulations as AI reportedly poses threat to jobs, and thereby livelihoods. If such regulations come up, it has to be seen up to what extent activity in this space will be restricted and what kind of startups will get impacted. However, it seems AI-based developments are an irreversible phenomenon and funding activity is likely to remain robust in the coming years.