According to Pitchbook, generative AI deals decreased by 29% in the third quarter compared to the previous quarter, with a total value of $6.1 billion. The significant deal value is mainly due to Amazon’s $4 billion agreement with language model provider Anthropic. However, Big Tech’s dominance in the generative AI space may be scaring away investors and startups, according to Pete Flint, general partner at NFX.
Flint stated that the retention and monetization of generative AI are not sufficient. This slowdown in dealmaking activities is evident even among Big Tech companies, with only Apple and Google publicly disclosing AI acquisitions this year, as noted by CB Insights.
Nevertheless, R “Ray” Wang, principal analyst and founder of Constellation Research, believes there is still a lot of interest in AI investments. However, he points out that valuations are inconsistent, except for OpenAI. Wang predicts that consumer-based AI startups in San Francisco will struggle to secure funding, but companies focused on enterprise software-based AI will attract more investment.
Tim Guleri, managing director at Sierra Ventures, sees great opportunities in enterprise AI. Guleri emphasizes that generative AI can have a significant impact on revenue and cost for enterprises, helping them bring products to market faster and improve customer conversions. He also highlights the cost-saving potential of enterprise Generative AI for back-office functions like document processing and customer support.
In contrast, Wang sees potential in arbitrage AI in New York, where there is twice as much funding as in enterprise AI. Arbitrage AI involves leveraging pricing inefficiencies in financial systems to boost profits. However, Guleri is skeptical about the effectiveness of arbitrage AI, stating that human intuition is crucial for successfully navigating market trends.
Despite potential concerns and uncertainties, AI investments are projected to reach $200 billion globally by 2025, according to Goldman Sachs. Bloomberg Intelligence predicts that the market size will grow from $40 billion in 2022 to $1.3 trillion over the next 10 years. Guleri emphasizes that while the impact of generative AI may be overstated in the short term, it will need time to mature, become more accurate, and ensure safety. Enterprises should be prepared for a long-term commitment, with a planning horizon of 5 to 7 years.
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