There has been a surge in investments in artificial intelligence this year, leading to some venture capitalists becoming increasingly selective.
In Q1 this year, the top 35 venture capital firms announced 51 AI funding rounds, up from 31 in the same period last year, according to S&P Global Market Intelligence.
At the Ai4 conference in Las Vegas, key figures from Citi Ventures, Pinegrove Capital Partners, Alumni Ventures, Blitzscaling Ventures, and Radical Ventures discussed the evolving AI market and how they’re identifying promising startups.
Here are some of the most important trends from the conference.
We’re still in an “overheated” AI market
Vibhor Rastogi, director, venture investing at Citi Ventures labeled the AI market as “overheated,” driven by the release of ChatGPT in 2022.
Rastogi noted that approximately $20 billion was funneled into gen AI over the past year, with major players like OpenAI raising nearly $13 billion, and $1 billion each in Anthropic and Scale AI. Major tech giants such as Google, Microsoft, Meta, and Amazon also announced $100 billion in AI capital expenditures.
“That is an unprecedented scale of investing in a brand-new technology,” said Rastogi. “Ultimately, a lot of that has to pan out into returns.”
Rastogi noted that revenue stemming from AI remains modest compared to the investments made, with OpenAI reporting $2 billion in revenue and other companies trailing far behind.
Much of this revenue is consumer-based and not enterprise-driven, given the latter’s concerns with costs and data privacy, challenges which, if not addressed, could thwart further AI investment.
“I suspect, in the next couple of quarters, we will see a slowdown in both [capital expenditure] and investment,” said Rastogi.
The financial industry is the least impacted by AI
Chris Yeh, general partner at Blitzscaling Ventures, argued that the financial sector is the least likely to be dramatically transformed by AI.
Yeh’s framework, which assesses language-based data, productivity gains, and industry efficiency, suggests that entrenched inefficiencies in finance are maintained by its established players.
“For that, I don’t look to AI to dramatically transform how the entire financial system works,” he said.
