The AI revolution might only be in its nascent stage, but the funding in AI-based startups is already on a decline after peaking in 2021. According to the numbers presented by NoKyc.com, venture capitalists invested a total of $42.5 billion in AI startups in 2023. This was the second consecutive year to witness a decline in fundings in Artificial Intelligence-based start-ups.
AI investments on decline after hitting a peak in 2021
According to the latest report published on Statista, investment in Artificial Intelligence startups has been on the declinefor the past two years. Following modest investments in 2019 and 2020, AI startups saw a flurry of investments in the post-Covid world. In 2019, a total of $32.5 billion was invested in AI startups through 3055 deals. During the next year, 2020, the investment slightly increased to $33.8 billion. The actual peak in investments in AI startups came in 2021 as the world emerged from the pandemic.
The end of COVID coincided with the peak in buzz around AI startups as venture capitalists invested $74.6 billion in 3,585 deals. Thus, within the space of a year, the investments in AI startups more than doubled. Interestingly, the number of deals only increased marginally, from 2934 (in 2020) to 3585 (in 2021), indicating a significantly larger amount of investment per deal on average.
However, the furore over AI startups seemed to calm down in 2022 as investments shrunk down to $47.2 billion (over 3292 deals). This change indicated a decrease of 36.6% in investments on a y-o-y basis. The investments further decreased to $42.5 billion in 2023. The total number of deals also decreased to 2500 in 2023. Thus, the number of investment deals in AI startups in 2023 was at its lowest since 2019.
Vyom Chaudhary, editor at Nokyc.com, commented: “The decrease in investments in AI startups is not an indicator of a declining interest in AI as technology. Rather, following an initial flurry of buzz about AI, venture capitalists have become mature and highly selective about their investments. Furthermore, increasing interest rates and slowing economic growth have also impacted the size of investments.”
