Where are the world's most successful startup investors deploying their funds? Artificial intelligence, e-commerce and biotech.
That's according to a new report from Pitchbook, which detailed specific sectors where top-tier venture-capital firms are placing their bets. Meanwhile, sectors like Web3 and decentralized finance (DeFi), once white-hot industries during the crypto boom, have fallen out of favor with investors.
Pitchbook's report, the Emerging Tech Indicator, looks at quarterly angel, seed and early-stage investment activity from the "world's most successful VC firms." Pitchbook identifies these investors by evaluating the success of their investments over time in terms of exits and valuations. In total, the second quarter of 2023 Pitchbook tracked 120 early- and seed-stage deals from 15 of these so-called top VC firms.
The report provides a look into what these top investors view as the most promising areas of startup investing, while also seeing what sectors may be falling flat.
Perhaps not surprisingly, artificial intelligence and machine learning investments lead the way in total deal value, with top investors pumping $646 million into the sector last quarter. The top deal was a $140 million round for Typeface, a generative AI startup for brands. E-commerce was second on the list in terms of deal value, thanks to a whopping $500 million round for Indonesia-based e-commerce platform Mandy.
Biotech, fintech and information security (also known as Infosec) also all saw more than $200 million invested last quarter by top VCs. Pitchbook's report noted the "collapse of Web3 & DeFi as a top investment category," as its quarterly deal value was just $159 million in the Emerging Tech Indicator report, down from more than $1.5 billion a year ago.
When looking at deal count, artificial intelligence and fintech led the way, with 25 and 17 deals, respectively.
The rise of artificial intelligence startups, and the influx of VC dollars in the space, in many ways has been the tech story that's defined 2023. New startup unicorns — companies valued at $1 billion or more — have plummeted this year, except among AI firms. American Inno reported in June that, of the 20 North American startups to raise funding at a $1 billion-plus valuation in 2023, half were AI startups. And they're reaching unicorn valuations at lightning speeds.
Generative AI companies reached unicorn status nearly twice as fast as the average $1 billion startup, according to data from CB Insights. 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 seven years.
