There may be winter Early arrivals for AI and machine learning startups. After years of bright forecasts, growth and investor enthusiasm, a new report from PitchBook shows that VC activity in the AI sector has slowed down rapidly over the past few months.
Price growth in AI startups decreased by 27.8% quarter-over-quarter in Q2 2022, with total investments reaching $20.2 billion in 1,340 deals. Year-to-date, VCs have pumped $48.2 billion into AI startups in more than 3,000 deals — that sounds healthy, but actually represents a 20.9% dip year-over-year.
“The 2021 IPO wave has gone largely unrewarded in horizontal AI startups, leaving questions about the size of the market for AI software and opportunities for AI chip companies.” Pitchbook senior analyst Brendan Burke
According to PitchBook data, AI funding decreased at all levels of negotiations. Excluding angel and seed rounds, early-stage investments totaled $4.2 billion, down from $5.6 billion in Q1 and down 35 percent from the same quarter last year. Meanwhile, late-stage funding fell from $18.3 billion in Q1 to $13.4 billion in Q2 — a 48% decline compared to last year.
As VC deal rates and deals hit their lowest levels in AI startups since Q4 2020, investors aren’t the only ones pulling back.