Despite the AI frenzy, venture capital funding falls sharply in the first half of the year

According to research firm PitchBook’s data, venture capital funding nearly fell in half globally in the first half of 2023, indicating a lack of interest on the part of investors as well as a decline in demand despite dramatically higher interest rates.

Despite a significant amount of interest in artificial intelligence startups generated by the success of OpenAI’s ChatGPT, investments have decreased by 48% to $173.9 billion, and deal counts have decreased by 19%.

In the last six months, investors have invested more than $40 billion in AI businesses, according to statistics. In addition, Microsoft invested $10 billion in OpenAI, and rival Inflection AI received $1.3 billion in funding.

Latin America experienced the largest decline (86%), followed by the United States (65%) and Europe (69%) in terms of regional decline.

Investors claim that, in addition to valuations being reevaluated as a result of increasing interest rates, their level of selection has increased as a result of the current paucity of IPOs and other exit options.

Kevin Colleran, a cofounder of early-stage company Slow Ventures, stated, “I haven’t written any checks in the last 18 months.” “I need your assistance in figuring out how to survive for my 30 portfolio companies. I have no reason to make things worse.

According to PitchBook, big investors weren’t actively investing in venture capital, and oversized transactions that had driven deal values to records were no longer taking place. An annual record of $745.1 billion was reached for venture capital investing globally in 2021.

Across all phases of the funding cycle, activity has decreased, with the first seed round recording the largest dip (44% fewer deals in the US).

According to investors, a large number of companies that received funding in 2021 are still sitting on a sizable sum of cash and see no need to re-enter a market where prices are anticipated to drop significantly. In the second half, they did, however, anticipate a little increase in demand.

According to Mary D’Onofrio, a partner at Bessemer Venture Partners, more businesses will run out of funds and will need to go public in order to fully fund their strategies.