‘Mega-deals’ could be inflating overall AI funding figures

It’s safe to say that VCs struck while the iron was hot this year where it concerned generative AI.

While venture capital investments overall fell compared to last year thanks to macroeconomic challenges and other related factors, startups in the generative AI space — and AI more broadly — did quite well.

Funding for AI-related startups surpassed $68.7 billion in 2023, according to PitchBook, with generative AI vendors like OpenAI, Stability AI and Anthropic accounting for a substantial portion of that figure. And it appears that the sector will likely close the year with substantially higher investments than the past couple of years.

But could the top-level numbers be misleading?

A report on AI investment in Q3 by PitchBook, released this morning, found that “mega-deals” (i.e., multi-hundred-million-dollar investments from big-name backers) vastly inflated deal totals this year.

For example, just a few months ago, Amazon pledged to invest up to $4 billion in Anthropic, the company developing the AI-powered chatbot Claude. OpenAI secured a $10 billion investment from Microsoft (albeit not all at once and partly in the form of cloud compute credits). Inflection AI, a firm creating what it describes as more “personal” AI assistants, raised $1.3 billion in a funding round led by Microsoft. The list goes on.

In Q3, VC funding inclusive of mega-deals totaled around $22.1 billion. But after subtracting the tech-giant-led tranches secured by generative AI startups, the total is closer to $15.1 billion for the sector.