Investors pour $27.1 billion into AI startups, hoping to weather recession
In May, CoreWeave, a provider of cloud computing services to AI companies, raised $1.1 billion, followed by $7.5 billion in debt, valuing the company at $19 billion. Scale AI, a provider of data to AI companies, raised $1 billion, valuing the company at $13.8 billion. And xAI, founded by Elon Musk, raised $6 billion, valuing the company at $24 billion.
According to Kyle Stanford, research analyst at PitchBook, such funding rounds have boosted overall deal closure in the sector in both dollar amount and number of deals.
“It’s not going down anymore,” he said. “The bottom has already fallen out.”
The activity has prompted some venture capitalists to change their messaging. Last year, Tom Loverro, an investor at IVP, predicted a “mass extinction” for startups and encouraged them to cut costs. Last week, he declared that era over, dubbing it the “Great Reawakening,” urging companies to “step on the gas” for growth, particularly around artificial intelligence.
“The AI train is leaving the station and you have to be in it,” he said. wrote on X.
The startup downturn began in early 2022, as many loss-making companies struggled to grow as quickly as they had during the pandemic. Rising interest rates also forced investors to pursue less risky investments. To compensate for the dwindling funding, startups cut staff and scaled back their ambitions.
In late 2022, San Francisco-based AI lab OpenAI kicked off a new boom with the release of its ChatGPT chatbot. The excitement surrounding generative AI technology, which can produce text, images and video, sparked a frenzy of startup creation and funding.
