TLDR:
– Venture funding in AI has been skyrocketing, with large rounds for companies like Figure and Lambda.
– M&A remains the most common exit path for VC-backed AI startups, although the pace has slowed down.
Investors in the AI space have been pouring money into startups, with venture funding exceeding $50 billion last year. Public market investors have also been active, with chip giant Nvidia and others vying for top positions. However, despite the high valuations, M&A activity for AI startups has been relatively slow. Last year saw a decline in dealmaking, with only 190 deals consummated compared to 276 in the previous year. The slow pace continued into the first quarter of this year, although there have been signs of increased activity.
While many AI startups are achieving high valuations, concerns have been raised about the ability to generate significant returns at those levels, which could be affecting dealmaking. Established tech players like Google and Microsoft are expected to be the big winners in certain areas of AI infrastructure and applications, potentially leaving startups scrambling for exits. The M&A market indicates that returns are currently slow, and the market is still in a state of flux.
