The year 2024 saw a significant surge in investments for generative AI, a field that encompasses various AI-powered applications, tools, and services to generate text, images, videos, speech, music, and more. According to data from financial tracker PitchBook compiled for TechCrunch, generative AI companies worldwide raised $56 billion from VCs in 2024 across 885 deals. This total is a new record for the segment, representing a 192% increase from 2023 when investors poured $29.1 billion into generative AI startups across 691 deals.
A New Record for Generative AI Funding
"The investments we’ve seen in 2024 demonstrate that there’s still a huge appetite among VCs for generative AI companies," said Ali Javaheri, an emerging technology analyst at PitchBook. "Big names like OpenAI, Anthropic, and xAI continue to secure major raises and release new, competitive products."
Deal Value Soars in Q4 2024
Deal value in Q4 2024 reached $31.1 billion with the closure of massive rounds such as Databricks’ $10 billion Series J, xAI’s $6 billion Series C, Anthropic’s $4 billion strategic investment from Amazon, and OpenAI’s $6.6 billion round.
Mergers and Acquisitions in 2024
While mergers and acquisitions accounted for a small share of generative AI investments in 2024, amounting to $951 million per PitchBook data, it’s worth noting that this figure excludes various ‘acqui-hire’ deals executed by Google, Microsoft, and Amazon. For instance, Google reportedly paid $2.7 billion to hire much of chatbot startup Character AI’s staff and license its technology.
US Companies Dominate Generative AI Backing
U.S. companies attracted the bulk of generative AI backing last year, with startups outside the U.S. securing just $6.2 billion of all 2024 VC investments in the market. However, there were some notable exceptions, including:
- Beijing-based Moonshot AI ($1 billion in February)
- French startup Mistral (~$640 million in June)
- Cologne-based company DeepL ($300 million in May)
- Shanghainese firm MiniMax ($600 million in March)
- Tokyo-based Sakana AI (~$214 million in September)
What to Expect from Generative AI in 2025
As the generative AI sector continues to grow, Javaheri believes that it may face challenges in the coming year. "The sector risks becoming oversaturated with startups in exceedingly similar (or even identical) verticals," he noted. For instance, no fewer than four companies developing AI coding assistants — Augment, Magic, Codeium, and Steppin — have secured significant funding.
Potential Challenges for Generative AI in 2025
The surge in investments may lead to increased competition among generative AI startups. As a result, companies may struggle to differentiate themselves and secure further funding. Moreover, the growing concerns over AI ethics and safety could also impact investor confidence in the sector.
Conclusion
Generative AI has emerged as one of the most promising fields for investment in recent years. With significant funding pouring into the sector, it’s likely that we’ll see continued innovation and growth in 2025. However, the challenges mentioned above may require companies to adapt quickly to changing market conditions and investor expectations.
Recommendations
For investors looking to stay ahead of the curve:
- Monitor industry trends: Keep a close eye on emerging trends and technologies within the generative AI sector.
- Diversify your portfolio: Spread investments across various sectors and companies to minimize risk.
- Stay informed about regulatory developments: Stay up-to-date with the latest regulations and guidelines regarding AI, as they may impact investor confidence.
By being aware of these factors, investors can make more informed decisions and capitalize on the growth opportunities presented by generative AI.
