2023 has been an incredibly exciting and prosperous year for the tech industry, with major players such as Microsoft, Google, and Amazon leading the charge in investing, especially in the realm of generative AI startups. This boom in AI technology has been a major factor in the post-Covid recovery of these tech giants and their stocks, with Meta’s stock price skyrocketing to 188%, second only to Nvidia’s 246% increase in the S&P 500. Furthermore, startups such as Inflection, Anthropic, Mistral, and OpenAI have all achieved phenomenal success with Mistral, which was founded in May 2023, being valued at $2 billion in just four months!
Microsoft’s $10 billion investment in OpenAI and substantial funding from Inflection and Anthropic have resulted in AI funding almost tripling the previous record of $11 billion set two years ago. This surge in investment is mainly attributed to the tech giants, who have accounted for a staggering two-thirds of the $27 billion that has been raised by emerging AI companies this year, according to data from PitchBook. This demonstrates the power and influence of Silicon Valley over traditional venture capital firms in securing major deals within the AI industry.
Venture capitalists have been left in the dust by the tech giants who have been able to match them in terms of financial and strategic interests. Additionally, they are able to offer these smaller AI developers the hardware and resources they need to scale, which gives them a considerable edge over the VCs. Nina Achadjian, a partner at Index Ventures spoke on the market’s consolidation, with power shifting to big tech, “Over the past year, we’ve seen the market quickly consolidate around a handful of foundation models, with large tech players coming in and pouring billions of dollars into companies like OpenAI, Cohere, Anthropic, and Mistral.”
Patrick Murphy, founding partner at Tapestry VC, also highlighted the competitive disparity: “Even the world’s top venture investors, with tens of billions under management, can’t compete to keep these AI companies independent and create new challengers that unseat the Big Tech incumbents. In this AI platform shift, most of the potentially one-in-a-million companies to appear so far have been captured by the Big Tech incumbents already.”
Not all hope has been lost for venture capitalists, however. For example, French start-up Mistral raised around $450 million from investors such as Andreessen Horowitz, General Catalyst, and Nvidia since its inception in May. Furthermore, open source projects are more resistant to big tech firms as they focus on securing competitive edges in their closed, proprietary software. VCs can also focus on companies developing applications over foundational models created by firms such as OpenAI and Anthropic, as suggested by Sarah Guo, the founder of AI-focused venture firm Conviction, who stated, “There is a huge space of still-unexplored application domains for AI and a lot of the most valuable AI companies will be fundamentally new.”
As we look ahead to 2024, we can be sure that it will bring forth a plethora of exciting opportunities in the field of AI. Big tech firms have significantly outgunned venture capitalists this year, but there are still many avenues for innovation and investment beyond class-leading models. Now is the time to get involved and capitalize on the incredible potential of generative AI!
