Startup unicorns remain a rare species in the current business environment, with the number of tech upstarts valued at $1 billion or more having fallen from its peak in 2021. But the emergence of artificial intelligence, and the investor interest surrounding the sector, is keeping the unicorn herd alive.
There were seven new North American unicorns in May, according to venture capital data firm Pitchbook. That's the most in a single month since October 2022. Two of those seven companies were artificial-intelligence startups — Sigma and Runway.
In fact, of the 20 North American startups to raise funding at a $1 billion-plus valuation in 2023, half are AI firms, according to Pitchbook. Some of the largest funding rounds include OpenAI's deal with Microsoft Corp. that valued the ChatGPT maker at $28 billion, and Cohere, a generative AI startup founded by ex-Google researchers, raising $250 million.
The continued investment in artificial-intelligence startups in 2023 follows last year's hot streak for AI firms amid a general downturn for much of the rest of the tech industry. Generative AI, the type of artificial intelligence that creates text, images and other content in response to prompts, saw a record year for investment in 2022, according to a recent report from business-analytics platform CB Insights.
Last year, generative AI startups raised more than $2.6 billion in funding across 110 deals. That's up from $1.5 billion for 105 deals in 2021, and nearly 10 times the $271 million raised across 65 deals in 2020.
Generative AI's explosive growth comes as the sector is still in its early stages. Of the more than 250 generative AI startups identified by CB Insights, 51% have raised only a Series A round or earlier, and 33% have yet to raise any outside funding. The newness of the space will inevitably lead to new entrants and quick flameouts, but it's also a sign of how many more generative AI startups could be backed in the months to come.
By the end of 2022, six generative AI startups reached unicorn territory, according to CB Insights. Today, there are 13 generative AI unicorns.
These companies also are moving from launch to a $1 billion valuation at lightning speed.
The 13 generative AI unicorns identified by CB Insights reached their unicorn status nearly twice as fast as the average $1 billion startup. The average time to become a unicorn is 3.6 years for generative AI firms, according to CB Insights, while the average unicorn timeline overall is 7 years.
Jasper, an AI marketing startup in Austin, Texas, was less than two years old when it raised $125 million at a $1.5 billion valuation last year.
Stability AI, maker of Stable Diffusion, a deep learning text-to-image generative AI startup, launched in 2019. It raised $101 million last year and already is eyeing more cash at a $4 billion valuation.
And when it comes to these sky-high valuations, revenue appears to be optional — at least for now. AI startup Rewind raised capital at a $350 million valuation in May with only $700,000 in revenue, according to The Information. LangChain, another AI startup, raised funding at a $200 million valuation with only "minimal" revenue, according to Business Insider.