PitchBook, which tracks venture capital and private equity, has been recording investments in generative AI startups since 2021. By the end of 2023, companies in this category had raised $23.2 billion, a 250% increase. compared to the 2022 total, according to its figures.

However, this amount includes massive funding from companies, such as Microsoft’s capital injection into OpenAI and Amazon’s funding of Anthropic. When reducing conventional venture capital investments, funding for AI startups in 2023 was much lower and only matched the total amount raised in 2021.

Brendan Burke, principal analyst at PitchBook, noted in a report that venture capital funding was increasingly being channeled toward “underlying core AI technologies and their ultimate vertical applications, instead of purpose-built middleware.” general for audio, language, images and video.

In other words: a GenAI app that helps a business generate online sales, analyze legal documents, or maintain SOC2 compliance is likely a safer bet than an app that generates a smart video or photo of from time to time.

Clay Bavor, co-founder of Sierra, believes it’s not necessarily IT costs or cloud APIs that are driving AI startups toward B2B models, but rather the benefits of targeting a specific customer and iterating a product based on it. of their comments. “I think everyone, myself included, is pretty optimistic that the capabilities of these AI models will increase while the costs will come down,” Bavor says.

“There’s something really powerful about having a clear problem to solve for a particular customer,” he says. “And then you can get feedback on, ‘Is this working?’ Does this solve a problem? And if you build a business with that, it’s very powerful.

Although ChatGPT has sparked an AI boom in part because it can nimbly generate code one second and sonnets the next, Arvind Jain, chief executive of AI startup Glean, says the nature of technology always favors restricted tools. On average, a large company uses more than a thousand different technical systems to store its data and information, he says, creating an opportunity for many small businesses to sell their technology to these companies.

“We’re in this world where there are basically a bunch of working tools, each serving a very specific need. This is the way of the future,” says Jain, who spent more than a decade working on search at Google. Glean powers a workplace search engine by connecting to various enterprise applications. It was founded in 2019 and has raised more than $200 million in venture capital from Kleiner Perkins, Sequoia Capital, Coatue and others.

Error checking

Building a generative AI product to serve enterprise customers has its challenges. Errors and “hallucinations” from systems like ChatGPT can have more consequences in a business, legal or medical environment. Selling gen AI tools to other companies also means meeting their privacy and security standards, and potentially their industry’s legal and regulatory requirements.

“It’s one thing for ChatGPT or Midjourney to be creative for an end user,” says Bavor. “It’s another to be creative in the context of business applications.”