AI still dominates VC funding

AI Video & Visuals

According to PitchBook, the excitement around AI is accelerating venture capital gains, accounting for more than 60% of the overall valuation increase for venture-backed companies. Kyle Stanford, Pitchbook's lead VC analyst, appears on Catalysts to discuss the trend ahead of second-quarter earnings season.

“When you look at the broad range of companies being funded that are labelled as AI, there are clearly some great companies that can command high valuations and have the potential to grow, but then when there's a lot of interest in the market, you start to see companies building new technologies that incorporate AI into their business models or claim to be using AI, but don't actually use it,” Stanford explains. He points out that Series A valuations for AI companies are nearly 30% higher than the rest of the market, and he believes this contributes to the “sloppiness” that's happening in the venture capital ecosystem.

But Stanford emphasized that venture capital firms remain very interested in AI, explaining, “What everyone wants right now is efficiency. They want automation. And AI is the way to build that.” With second-quarter earnings season fast approaching, he urges investors not to get discouraged if companies don't see the results of their AI investments. “One quarter doesn't tell you which companies will be able to validate their AI strategy. AI is going to be a long-term growth story for the market.”

To learn more about expert insights and the latest market trends, click here to watch this full episode of Catalysts.

This post was written by Melanie Leal

Video Transcript

The hype around AI is currently driving some of the gains being seen in the venture capital ecosystem, accounting for over 60% of the overall valuation increase for venture-backed companies.

This is according to data from PitchBook.


Well, this time it's Kyle Stanford.

This is Kyle, lead VC analyst at Pitch books, and thank you so much for being here.

This data is interesting.

For example, it says that 13 new AI unicorns have been born in the past year, but my question is: are these unicorns real?

Is there a business there, or are they just slapping AI on their name to inflate valuations?

Well, I suppose there's a little bit of that.

When we look at the wide range of companies tagged as AI and being funded, we can clearly see that there are some great companies that can command significant valuations and have great potential to grow.

Behind the scenes.

Additionally, as interest in the market grows, companies will begin to incorporate AI into their business models and claim to be leveraging AI or developing new technologies.

We're starting to see some arguably sloppy deals in seed and Series A, when in fact that's not the case: Series A valuations for AI companies are nearly 30% higher than the rest of the market.

So, maybe, as you say, there is some sloppy work going on in BC.

But overall, when you look at A IA I, there's definitely an interest in BC.

And a lot of great companies are being born.

Well, Kyle, I'm curious from your conversation about the numbers that we've been seeing and the trend towards AI, this interest that seems to be sweeping Wall Street.

Do you think this story will continue for a while here in the market?

Yes, that's right.

So far, VC interest in AI has not changed.

Well, obviously we've been through cycles like this, cryptocurrencies are cycles, fintech is cycles, and they've been going down recently.

Um, but right now what everyone wants is efficiency.

They want automation, and AI is what they're building that into. If you look at the public markets, the companies that are really driving market performance, whether it's Microsoft Open AI, Microsoft, Amazon, NVIDIA, all of these companies are focused on AI and trying to drive the narrative of what future growth looks like through that technology.

I think a key thing that a lot of people on our show are talking about, especially heading into this revenue cycle, is which companies can prove their AI investments.

What's the biggest thing that you've seen in terms of serving as a leading indicator that companies that are leveraging AI are actually going to continue to do well?

The AI ​​plays the game 10 years in the future.

Admittedly, it's important to note that a single quarter doesn't provide a clear picture of which companies are able to demonstrate their AI adoption.

But if you look at what Google has achieved through AI and how it has improved its growth story, you can see that Microsoft is looking to acquire AI and make sure it is embedded in every part of their products.

I think AI will be the long-term growth story for the market.

Kyle, just a random question. We just saw Tik on this topic talking about how VC is the role to have in finance if you want to make the most money and have a reasonably normal work-life balance.

Well, given some of the changes we've seen in the VC industry over the past few years, do you think that's still true for people who are interested in VC as a career path?

So yeah, I think that TikTok story definitely happened in 2020, 2021.

This was a really sexy finance job where I could jump in and raise money, collect fees, make really attractive investments, and say I have all these new unicorns in my portfolio.

I think what we're seeing now is that the BC market decline shows that this is a very tough game.

You need a sourcing model, you need your own deal flow.

LP Ss need a reason to come and invest, whether it is a brand name fund or a company with a long track record, it is not easy to raise capital anymore and we are really looking for ways to get DPIL LP Ss and we are being very cautious.

Jumping into VC sounds great, and it's still a great career path, but it might not be as easy as it was a few years ago when things like TikTok came along and seemed like the new trend.

Well, some wise advice to all TikTok users, including myself, who are listening here. Kyle, thank you so much for joining us.

It was Kyle Stanford.

He is Pitchbook's Chief VC Analyst.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *