With the meteoric rise of ChatGPT, a chatbot developed by Microsoft-backed OpenAI, venture capital firms are focusing on investment opportunities in the artificial intelligence sector.
According to the latest VC report from PitchBook, 36 percent of venture capitalists expect AI to generate the most growth of all technology sectors, followed by climate tech (18 percent), fintech (13 percent), and software-as-a-service (13 percent). Venture capital firms also believe that the AI sector will be the primary source of innovation in technology.
The results are based on a survey of 58 professionals in the venture capital industry, most of whom are general partners based in North America and Europe. The survey was conducted in March, when the explosive growth of ChatGPT and the demise of Silicon Valley Bank dominated headlines in the venture ecosystem.
“We expect organizations and startups to begin investing significantly in building out generative AI capabilities for both productivity and efficiency initiatives and to enhance the customer experience,” the report said. The survey showed that more than 70 percent of venture capitalists think generative AI will be “very disruptive” over the next five years, while another 70 percent of the respondents believe that generative AI is “likely” or “very likely” to create a new wave of tech unicorns — private companies valued at $1 billion or more — in the next five years.
The enthusiasm over AI technologies in the venture community comes at a time when investors and data providers are investigating how to incorporate AI tools into the investment process. PanAgora, a $44 billion quantitative asset manager based in Boston, has been exploring the capacity of AI tools for winning mandates, while EQT, a Sweden-based private equity firm, has built an AI engine that helps improve the deal sourcing process. Bloomberg has also developed a large language model, BloombergGPT, to enhance natural language processing tasks.
The positive investment sentiment surrounding AI also coincides with the overall optimism found in the VC space. The report found that most venture capitalists think valuations will be more attractive in the next six to 12 months than they were in the last six to 12 months, and 43 percent of them believe that 2023 will be the best vintage year in the 2019 to 2024 period.
According to the report, some tech sectors — including enterprise technology, fintech, and e-commerce — will face immense pressure from generative AI. “These industries rely on specific organizational software that helps power products and customer experiences,” the report said. “To the extent that generative AI makes it easier for competitors to quickly develop comparable software and/or customer experiences, this could fuel more commoditization of service offerings and make it easier for customers to switch providers.”
