The unicorn herd has been thinning lately, but one sector of the tech industry is helping prevent the herd from collapsing.
Of the 20 North American startups to hit a valuation of $1 billion or more this year as part of a funding round, half are in the artificial intelligence area, according to PitchBook Data.
What's more, some of this year's largest funding rounds have gone to AI startups. Those include OpenAI LLC's $10 billion, multi-year deal with Microsoft Corp. that valued the San Francisco-based maker of the ChatGPT chatbot at $28 billion, and the $270 million deal raised this week from the likes of Nvidia Corp., Salesforce Inc. and Oracle Corp. by Cohere Inc., a Toronto-based startup founded by ex-Google researchers that's working on generative AI, the same technology underlying ChatGPT.
In May, when seven startups joined unicorn herd — the most in a month since October, according to PitchBook — two of those new members were AI startups: San Francisco-based Sigma Computing Inc., which has raised more than $381 million, and Runway AI Inc., a New York City company that has raised $195.5 million.
The continued investment in AI companies this year follows a trend from last year. Even amid a big dropin overall venture investing, startups focused on generative AI — the type of artificial intelligence that can mim-ic human-created text, images and software code in response to simple prompts — raised record amounts of funding in 2022, according to a recent report from venture research firm 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 via 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 plenty of new entrants and quick flameouts. But it could also prompt a surge of funding in generative AI startups in the months and years to come.
By the end of last year, six generative AI startups had become unicorns, according to CB Insights. Today, there are 13 such unicorns, including San Francisco-based OpenAI, Anthropic PBC and Replit Inc., and Menlo Park-based Character Technologies Inc., also known as Character.ai.
These companies moved from launch to a $1 billion valuation at lightning speed. On average, the 13 generative AI unicorns identified by CB Insights hit unicorn status in 3.6 years, according to the research firm. For unicorns as a whole, the average time to reach a $1 billion valuation is 7 years, according to CB Insights.
