Venture capitalists are bullish on artificial intelligence but many are worried the tech industry's struggles last year will hinder innovation, according to a new report.
Such investors are particularly optimistic about generative AI, the technology epitomized by OpenAI LLC's ChatGPT that can produce text, images and software code that resembles that created by people, according to the report from PitchBook Data, which surveyed 58 venture capitalists in March. Nearly 71% of those surveyed said they believed generative AI would be "very disruptive" and would "spawn a new wave of technology unicorns over the next five years," according to the report.
Meanwhile, a plurality of respondents — about 31% — said AI would be the biggest source of technology innovation over the next year.
The investors were also relatively optimistic about technologies focused on mitigating or addressing climate change. Some 24% of respondents said that area would see the most technological innovation over the next 12 months.
The areas the venture investors were least bullish about, when it comes to near-term innovation were cryptocurrency and food technology. Each category was named by less than 6% of those surveyed as being the area most like to see innovation in the next year.
Many investors were worried about how what PitchBook dubbed the "tech wreck" of last year would carry over into this year and beyond. Last year, with sales growth slowing or even falling, many public tech companies saw their share prices plunge. The tech-heavy Nasdaq composite index — comprised of the shares of companies like Apple Inc., Alphabet Inc., Meta Platforms Inc. and many others — lost more than 33% of its value. In response, numerous companies announced mass layoffs, venture firms dramatically cut back their investments and startup valuations dropped.
About 51% of survey respondents said that industry downturn would harm innovation. But the other 49% saw it as a positive for technological development.
Those who saw it as a positive believed startups will benefit from the mass layoffs, because the cuts will make it easier for those companies to compete for workers. They also believe that the downturn has forced venture firms to be more prudent with their investments and reduce funding to start-ups with innovations of little use or merit. The slump has also spurred entrepreneurs to be more focused and caused valuations to drop to more realistic levels, they said.
But for those who looked at the tech wreck through a negative lens, the pullback drove entrepreneurs and potential investors out of the market due to risk and uncertainty, according to the survey.
Looking ahead, about 24% of those surveyed believe tech startup investment will increase next year, while around 43% believe it will drop. The remaining 33% think it will stay about the same.
More than three-quarters of those who responded said they expect startup valuations to become more attractive over the next year.
PitchBook's survey was global; about 40% of participants are based in North America or Europe. Of those surveyed, more than 48% are general partners and more than 15% are principal investors. Most are at smaller firms; almost 57% of respondents work for outfits with less than $50 million assets under management.
The research firm undertook the survey amid the mass adoption of ChatGPT and the collapse of Silicon Valley Bank. On the fall of SVB, more than 61% of venture capitalists said it would lead to less funding for startups but only 5.8% said the impact would be extreme. More than 38% said the bank's failure would have a neutral impact on startup funding.
