What happened: Despite the recent advancements in generative AI, the AI industry suffered a drop in funding during Q1 2023 as it couldn't escape the broader downturn in venture capital investment.
What it means: CB Insights released its State of AI Q1'23 Report, revealing more details about the investment landscape in AI, which has largely been stagnant. The drop in activity was unexpected, given the supposed favorable market conditions for AI startups.
What the numbers say: During Q1 2023, AI startups raised $5.4B, a 66% drop from the previous year's figure and a 43% decline quarter-over-quarter.
In Q1 2023, funding for AI companies based in the U.S. reached $3.7B, a 27% fall compared to the prior quarter. Deals for U.S. companies also fell for the fourth straight quarter, reaching only 232.
Globally, the number of investment deals also plummeted by 37%, with only 554 deals made in Q1 2023 — the lowest since Q4 2017.
There were five new AI unicorns in the first quarter, the same as the previous quarter, including the additions of Anthropic, Adept, and Character.AI, with each surpassing a valuation of $1B. Of the five new unicorns, three are based in the U.S., one in Israel, and one in Germany. Currently, the U.S. claims 64% out of the total 170 AI unicorns.
There were also 75 mergers and acquisitions (M&A) involving AI companies in Q1 2023, a 12% increase compared to the previous quarter, though still below the peak levels in 2021. Europe claimed the largest share of global AI exits at 38%. followed by U.S.-based companies at 33%, and Asia companies at 17%.
