Venture capital funding for generative AI startups is on track to exceed 2023’s record-breaking levels. In the first three quarters of 2024, GenAI startups raised over $20 bn, per S&P Global Market Intelligence data, setting up the year to surpass the $22.7 bn raised in 2023. Beinsure Media summarise the key highlights from S&P’s report.
Similar to last year, billion-dollar rounds from prominent players such as OpenAI LLC and Anthropic PBC have driven this surge (see How Will Generative AI Change the Cyber Insurance?).
The second quarter saw a major $6 bn deal for X AI Corp., while the third quarter was led by OpenAI, which secured $6.6 bn. Momentum remains high, with Anthropic reportedly planning another round after raising $8.8 bn.
The second and third quarters have been particularly strong, representing the highest quarterly funding totals since Q1 2023, when Microsoft Corp. invested $10 bn in OpenAI.
Key Highlights
- Generative AI startups raised over $20 bn in the first three quarters of 2024, indicating potential to exceed 2023’s $22.7 bn total.
- Notable transactions include X AI Corp.’s $6 bn investment in Q2 and OpenAI’s $6.6 bn in Q3. Anthropic PBC, which previously raised $8.8 bn, plans another round.
- Q2 and Q3 had the highest funding totals since Microsoft’s $10 bn investment in OpenAI in Q1 2023.
- New entrants like X AI and Safe Superintelligence join the competitive foundation model landscape, adding to the six active models in the US and Europe.
- Despite high expenses, investors are drawn to GenAI’s rapid revenue growth and potential as a transformative technology.
- Generative AI is reshaping insurance, expected to grow to a $5.5 bn market by 2032, through enhanced risk assessment, personalized services, and cost efficiencies.
Competition in Frontier Model Space
New players are entering the competitive frontier foundation model space, with companies like Elon Musk’s X and Ilya Sutskever’s Safe Superintelligence, which raised $1 bn. The US and Europe now host at least six frontier models, with more expected to enter the field.
Investor interest in GenAI remains high, especially for ventures led by seasoned entrepreneurs. However, building foundation models from scratch requires substantial capital, and the competition is intense, especially as tech giants like Alphabet Inc. and Meta Platforms leverage their larger resources.
Despite high cash burn, investors anticipate significant revenue growth and the potential for GenAI to emerge as a transformative technology platform.
According to a Stripe report cited by the Financial Times, GenAI startups reached $30 mn in revenue faster than companies in previous tech shifts, including software-as-a-service.
GenAI funding set for a record 2024
New Revenue Models for Smaller Model Providers
Smaller foundation model providers are seeking new ways to generate business. S&P Global Market Intelligence analysts note a growing focus on model tooling, driven partly by the challenge smaller providers face in competing with flagship models and the push to enhance open-source model performance.
Companies in the foundation model space are investing heavily to develop the next generation of GenAI models, aiming to avoid commoditization.
Leading models can capture a large share of a rapidly expanding market, though its ultimate size is uncertain. As competition heats up, some companies may exit or consolidate.
GenAI application startups are seeing growing investor interest
“This is a survival game. If you’re not early in building a protective moat, you’ll be left behind,” said Arun Bharath, chief investment officer at Bel Air Investment Advisors.
Major Players and Continued Funding
Major companies like Meta, Microsoft, and Alphabet have no choice but to keep investing in GenAI.
If you’re a big stack player… you have no choice but to keep raising your bet. If you blink, you’re left empty-handed
Sarah Tavel, a Benchmark venture capital general partner
Some firms, including Inflection AI and Aleph Alpha GmbH, have pivoted from the race, redirecting their focus toward helping enterprises adopt GenAI.
Still, frontier model startups must continue raising funds to compete with well-resourced tech giants. Anthropic, after raising $8.4 bn, is reportedly seeking another round at a $40 bn valuation.
TOP 30 funding rounds in GenAI
Growth in the Application Layer
Venture funding in 2024 has already exceeded last year’s figures in the application layer, where startups leverage third-party models with proprietary data to create unique solutions or target niche markets.
The challenge lies in selecting markets and use cases that don’t overlap with those targeted by frontier models. Companies like Perplexity AI and Ai Search (iAsk) are raising funds amid rapid revenue growth, with a belief that Google’s long-standing dominance in search could face its first real disruption.
Customer service and software development are emerging as early opportunities for GenAI. Code generation and customer experience applications are gaining the most interest within the application layer.
Outsourcing services may find themselves competing with generative AI, potentially reducing demand for human-based customer services, S&P analysts noted.
Specialization in Vertical Markets
Many application layer startups focus on deep specialization. James Drayson, CEO of stealth startup Appella AI, shared that the company shifted from general conversational AI to focus on fashion e-commerce, aiming to offer hyper-personalized shopping experiences.
The AI space is evolving quickly, so agility and vertical focus are crucial
James Drayson, CEO of stealth startup Appella AI
Other startups are exploring vertical markets like legal and healthcare, where GenAI tools could improve efficiency in these highly regulated industries.
Generative AI in Insurance
Global Generative AI in Insurance Market size will be worth $5,5 bn by 2032 from its current size of $346.3 mn, and growing at a CAGR of 32.9% through the next decade.
The insurance market is undergoing a remarkable transformation, thanks to the exponential growth of generative artificial intelligence (see How AI Technology Can Help Insurers).
Insurance providers are harnessing the power of artificial intelligence to optimise their operations, improve risk assessment models, and deliver personalised customer experiences.
The revolutionary capabilities of generative AI, which generates new and valuable information, are poised to reshape this industry sector.
As the insurance industry continues to navigate the pace of change, complexity and uncertainty in our world, consumers continue to respond, expecting companies to be more responsive to their needs. This year’s underwriting predictions offer guidance on how carriers can respond faster.
With Data-Driven AI models, insurance companies can do more personalized recommendations to consumer as well as to build the appropriate products for segments of clients by optimizing earnings and customer satisfaction
AI can also determine an individualized price based on consumer behavior and historical data.
Artificial Intelligence Becomes an Unexpected Risk for Insurance
With artificial intelligence practically impacting all aspects of everyday life, the number of insurance gaps when using AI has staggered in recent years. Munich Re highlighted this in a recent whitepaper that showcased how AI exposures within traditional insurance policies possess the ability to become a significant unexpected risk to insurers’ portfolios.
There are two key gaps that insureds need to be aware of when using AI. One example is pure economic losses. For example, if a company utilises an AI internal operations.
Let’s say a bank utilises AI for extracting information from documents, but then if the AI essentially produces too many errors, then what has been extracted is a lot of incorrect information
This would mean that people would need to do the job again, which would cause a lot of extra expenses.
The second area of coverage gaps can be AI discrimination. An example would be with credit card applications and credit card limits.
The AI might be used to determine what is the appropriate credit limit for the applicant, and with that discrimination could occur, which would not be covered under other insurance policies.
FAQ
Generative AI startups raised over $20 bn in the first three quarters of 2024, putting the year on track to surpass the $22.7 bn raised in 2023.
The second quarter featured a $6 bn deal for X.AI Corp., while OpenAI secured $6.6 bn in the third quarter. Anthropic also raised $8.8 bn and is reportedly planning another round.
Key players include OpenAI, Anthropic, Elon Musk’s X.AI, and Safe Superintelligence. Major tech firms like Meta, Microsoft, and Alphabet continue to invest heavily in this space to stay competitive.
Investors expect generative AI to drive significant revenue growth and become a transformative platform. For example, generative AI startups reportedly reached $30 mn in revenue faster than prior tech trends like SaaS.
Smaller providers struggle to compete with flagship models and are exploring new revenue models, including model tooling and improving open-source models, to differentiate themselves.
Generative AI is transforming insurance by optimizing operations, enhancing risk models, and delivering personalized experiences. The global generative AI insurance market is expected to grow to $5.5 bn by 2032.
AI presents new risks for insurance, such as economic losses from AI errors and discrimination in credit decisions. Insurers are aware of these gaps and are considering how to address them in their policies.
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AUTHORS: Iuri Struta – Senior Research Associate at S&P Global Market Intelligence, Melissa Incera – S&P Global Market Intelligence analyst at 451 Research, part of S&P Global Market Intelligence, Alex Johnston – S&P Global Market Intelligence analyst
