Winter can be arrived early for AI and machine learning startups. After years of rosy forecasts, growth and investor enthusiasm, a new report from PitchBook shows that VC activity in the AI sector has declined sharply in recent months.
Deal value growth at AI startups declined by 27.8% quarter over quarter in the second quarter of 2022, with a total investment of $20.2 billion in 1,340 deals. So far, VCs have funneled $48.2 billion to AI startups through more than 3,000 deals — which sounds healthy, but in fact represents a 20.9% year-over-year decline.
“The 2021 IPO wave came and went without significant results for horizontal AI startups, raising questions about the market size for AI software and opportunities for AI chip companies.” PitchBook senior analyst Brendan Burke
AI financing turned down at all deal stages, per PitchBook data. Excluding angel and seed rounds, early stage investments reached $4.2 billion, down $5.6 billion in the first quarter and down 35% from the same quarter last year. Meanwhile, late-stage funding fell from $18.3 billion in the first quarter to $13.4 billion in the second quarter, down 48% from last year.
As the value of VC deals and number of deals in AI startups hit their lowest level since Q4 2020, it’s not just investors pulling out.