Editor’s note: In 2024, Crunchbase News interviewed active startup investors in artificial intelligence. Below are highlights from those interviews. Read the full interview with Felicis, Battery Ventures, Bain Capital Ventures, Menlo Ventures, Scale Venture Partners, Costanoa, and Citi Ventures, as well as highlights from other interviews we shared in 2023.
This year was a year of exponential growth in funding for AI companies. Through mid-December, venture funding reached $99.6 billion, an 80% increase from a year ago, according to data from Crunchbase. Nearly one-third of that money went to Foundation Model Enterprises.
The remaining two-thirds of the funds went to sectors affected by these new models. Apart from provisioning hardware and data to manage and operate AI, key sectors include autonomous driving, healthcare, robotics, professional services, and marketing and sales, according to data from Crunchbase.
With billions of dollars pouring into these new technologies, we spoke to more than six early- and late-stage investors this year to understand where they’re betting on AI.
I’ve heard that the majority of new investments from these companies are focused on AI, just as cloud computing was in the previous era. Rory O’Driscoll of Scale Venture Partners estimates that about 80% of his firm’s new investments this year will be centered around AI.
Applied AI
In 2023, AI selection, and the data infrastructure layer companies that configure and manage these models, was a major part of the conversation. For many investors, 2024 has seen a significant shift in thinking through AI applications that will have a significant impact on the sector, while continuing to invest in infrastructure.
“I think the real money will come from figuring out which apps get finished first,” O’Driscoll said. “Part of it is understanding how companies measure success.”
and “How willing are they to accept the inherently probabilistic nature of AI, in other words, how catastrophic failure can be?”
“There are a wide range of human tasks that AI can perform with some benefit, and I think a lot of the success will be in determining when it is well suited and when it is not,” O’Driscoll said. I am. He has invested in applied AI companies Regie.ai, Tavus, Bland AI, and Klarity.
Assistive AI
Sundeep Peechu, general partner at Felicis 1, echoed concerns about accuracy, saying, “Many services operate semi-automatically, with the potential for human intervention at the end, which essentially adds some level of oversight. It was predicted that
Multimodal AI is next, Pietsch said in an interview. This technology integrates text, images, audio, video, or a combination thereof into one interface.
A new type of fund
Menlo Ventures has partnered with Anthropic, one of the world’s largest generative AI startups, to create a $100 million AI-only fund called Anthology to invest in early-stage startups using AI.
“People want to be part of Anthropic right now. It’s playing the hot hand,” Menlo Ventures partner Tim Tully said in an interview.
Startups participating in the fund will receive free credit allocation to Anthropic’s models. And perhaps even more valuable, Talley says, is the access to Anthropic’s leadership.
anthology fund announced that it had been created 18 investmentsso far 8 of them are still in stealth.
Improved productivity
AI is not a feature. It’s not even a sector, says Dharmesh Thakkar, general partner at the renowned venture firm Battery Ventures.
“I look at AI as a construct,” Thacker said.
“What we see is generating AI in sales, marketing, research and development, recruiting and other business areas,” Thacker said. “And we see this innovation completely impacting productivity in the technology sector.”
Research and development, another major cost center, has also been significantly affected. “With Copilot, you can produce the output of expensive software engineers who make $300,000 to $400,000 a year. You don’t need that many software engineers,” Thacker said.
In other sectors, such as health care, for example, the impact could be even more severe, he said.
increase in revenue
In the software space, more dollars are being spent on services that integrate technology solutions than on products, Rak Garg, a partner at Bain Capital Ventures, said in an interview.
Generative AI offers an opportunity to turn service revenue into product revenue.
“These services are taking data from one place, shaping it in different ways, and putting it somewhere else,” he said, using unstructured data as an example. “Models are really good at that.”
Matt Carbonara, managing director of Citi Ventures, the venture investment arm of banking giant Citigroup, said AI application companies are starting to generate real profits.
“They’re pre-built, so it’s very easy. Companies are still learning. This is a new skill set,” Carbonara said. “How do you roll it out? How do you get the precision you want? It’s an iterative process, as opposed to someone coming to you with a pre-baked pie.”
go vertically
SaaS has dominated technology for the past 20 years, but is now ceding ground to AI, multiple investors said.
“We’ve literally solved most of the problems that can be solved with that generation of technology,” said Greg Sands, founder of Costanoa Ventures.
The company believes generative AI is now opening up vertical opportunities that may have been too small in the past, Sands said.
“The challenge with vertical SaaS has always been that instead of building something that applies to all verticals, you’re limited to one vertical, which reduces the total addressable market,” said Scottoa, general partner. John Cowgill said in an interview.
The company is looking closely at each industry to understand how big they will become with the rise of AI.
agent is coming
The conversation around agent AI, less than six months old, points to the creation of new native AI companies.
“The real value of AI comes when you can own the end-to-end workflow,” Cowgill says. “This is the idea that the agent goes from just applying the AI, pointing to something and saying, ‘Search with AI, summarize with AI,’ to own the work that the AI does. It’s incredibly difficult to get an agent to work for you. ”
It will take ten years
Investments in AI will increase in 2024 compared to 2023, but it will take many more investment cycles for the AI revolution to fully take hold.
“There’s probably going to be a period in the next two or three years where everyone is a little bit disappointed with traction and it’s going to correct a little bit,” O’Driscoll said. But “if you look 10 years from now, no one will be building software without AI at the core.”
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Illustration: Dom Guzman
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