With total investment falling by 10%, 2023 recorded AI startup backing of $42.5 billion, a decline after hitting the peak in 2021 as per reports.
Funding for AI-based startups fell to $42.5 billion in 2023, marking the second consecutive year of decline after peaking in 2021. Despite the ongoing AI revolution being in its early stages, the amount of venture capital invested in these startups has decreased 10% year over year, according to a report published recently by Statista.
Besides the drop, deal numbers also fell to 2,500 in 2023, representing the lowest number of investment deals in AI startups since 2019.
After relatively modest funding in 2019 and 2020, AI startups experienced a surge in investments in the post-COVID era. In 2019, $32.5 billion was invested across 3,055 deals, and the following year, the figure slightly increased to $33.8 billion.
The peak of investment in AI startups occurred in 2021 as the world began to recover from the pandemic. In 2021, $74.6 billion flowed into 3,585 deals, more than double the previous year’s amount.
However, the number of deals that year only slightly increased from 2,934 in 2020, reflecting a higher average investment per deal.
In 2022, the excitement surrounding AI startups waned as investments fell to $47.2 billion across 3,292 deals, marking a 36.6% year-over-year decline.
The downward trend was continued in the next year.
According to an expert, the drop in AI startup investments reflects venture capitalists’ growing selectivity and caution, not a declining interest in AI technology. Rising interest rates and slower economic growth have also influenced the reduced investment sizes.
Another report published by CB Insights studied the generic state of the global AI sector. As per their report, the industry added 22 new unicorns in 2023, a 39% drop from 2022 but better than other sectors. Google was the top AI investor in Q4’23, with nine startups backed.
