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Overall Investments are Down but the Hunt for AI Companies Continue



OpenAI just closed its Microsoft investment round of US$10 billion in January at an estimated valuation of US$29 billion according to Semafor. The deal gave Microsoft a 75% share of OpenAI's profits until it recovers its initial investment, after which it will hold a 49% stake. Now, just three months later, OpenAI is once again finalizing US$300 million in funding from VCs at a valuation between US$27-29 billion, according to TechCrunch. The VCs in question are Sequoia, Tiger Global, and Andreessen Horowitz, to name a few. TechCrunch's source said that outside investors own more than 30% of OpenAI now. If we account for Microsoft's own 49% stake, only 21% remains for the founders, management, and ESOP.


The investment pouring OpenAI is not a one-off case of investment activity into a leader in the AI space. Despite the macroeconomic decline causing VCs to adopt more conservative investment approaches and hold on to their "dry powder", the activity in the AI space has been increasing. If we take a look at the charts below, the total proportion of AI-related VC deals is steadily increasing from 6.9% in February to 10.2% in April. Of course, the total number of deals in April was down by 25.4% YoY to 3,400 from 4,556 last year.


Although the absolute number of AI-related deals has decreased 14.1% YoY to 348 from 405, the number of deals has been increasing consistently since the announcement of Microsoft's further investment in OpenAI in January. So we're looking at the early onset of a trend where total VC deals are going down but AI-related deals are growing.


Activity Comparison of AI-related VC Deals & Other Sectors VC Deals From Nov 2022 to April 2023 (Pre-Seed to Series B)

Sources: Vibranium Consulting, Crunchbase

Activity Comparison of AI-related VC Deals & Other Sectors VC Deals From Nov 2021 to April 2022 (Pre-Seed to Series B)

Sources: Vibranium Consulting, Crunchbase

We expect AI-related deals to continue their growth trajectory unless the macroeconomic situation takes a plunge due to a new situation. Right now, only the largest VCs are able to invest in the crown jewel of AI, OpenAI. But no king reigns forever, and other VCs who are late to the game are always on the hunt for the next AI leader or at least the 2nd OpenAI. Meanwhile, we expect more OpenAI and Amazon Bedrock to drive enterprise adoption of generative AI and also develop more use cases for enterprises, which will, in turn, generate more hype around generative AI. 2023 is shaping up to be the year of generative AI and the integration of AI into our daily lives.

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Overall Investments are Down but the Hunt for AI Companies Continue

OpenAI just closed its Microsoft investment round of US$10 billion in January at an estimated valuation of US$29 billion according to Semafor. The deal gave Microsoft a 75% share of OpenAI's profits until it recovers its initial investment, after which it will hold a 49% stake. Now, just three months later, OpenAI is once again finalizing US$300 million in funding from VCs at a valuation between U ....

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