AI Insight
AI Investment Remains Strong Despite Market Gloom — Mega-rounds, Unicorn Births, & Surges in Canada
Introduction
Despite an overall dip in venture funding, the AI sector has managed to sustain investment momentum in Q2'23, driven by generative AI mega-rounds, new AI unicorns, and a surge in funding for Canadian startups. Using CB Insights data, we uncover the key takeaways from the State of AI Q2'23 Report.
Q2’23 Funding
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Generative AI Holds the Fort AI funding took a hit in Q2'23, dropping 38% QoQ to $9.4B. However, excluding the massive $10B funding round by OpenAI in Q1'23, the funding would have actually grown by 81% QoQ.
The number of deals to AI startups increased for the first time in five quarters, reaching 590, with over 40% going to US-based startups. The ongoing excitement around generative AI remains a strong draw for investors, as evidenced by four of the top five largest funding rounds this quarter going to genAI companies.
Average AI Deal Size Swells in 2023
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In 2023 YTD, the average AI deal size has shot up by 48% to $29M compared to the full-year total for 2022. This growth is attributed in part to the genAI boom. Companies like Inflection AI, Cohere, OpenAI, and Anthropic have all attracted $100M+ mega-rounds this quarter. In total, mega-rounds nearly tripled QoQ to reach 22 in Q2'23.
Unicorn Births
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AI Dominates the Scene
Seven AI companies achieved unicorn status (valued at $1B+) in Q2'23. In comparison, the broader venture market only had 18 new unicorns this quarter, meaning that nearly 40% of them were AI companies. GenAI startups such as Cohere, Replit, Runway, Synthesia, and Typeface were part of the new entrants to the unicorn club.
AI M&A Deals On the Rise
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There were 86 AI M&A deals in Q2’23, marking a 13% QoQ increase and the third consecutive quarter of growth. Public exits remained scarce, with just two AI companies going public and none opting for SPACs, similar to Q1'23. The US led in AI exits, accounting for 35% globally, followed closely by Europe at 33%.
Canada Steals the Spotlight
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Canada saw a meteoric rise in AI funding, with a staggering 13x increase QoQ to reach $693M in Q2'23. Deal counts also jumped 35% to 23, the highest level in four quarters. This massive surge in funding was propelled by mega-rounds to genAI model developer Cohere and AI traffic management startup Miovision.
Conclusion
Amidst the wider venture capital gloom, the AI sector has managed to shine, backed by continued investor interest in generative AI, unicorn births, and a spike in funding for Canadian startups. As the AI landscape continues to evolve, it will be intriguing to see how these trends shape the future of AI investment.
Read the full State of AI Q2’23 Report from CB Insights here. This article is also published on Medium here.