AI craze is distorting VC market, as tech giants like Microsoft and Amazon pour in billions of dollars
With the biggest companies in the world throwing billions of dollars at generative AI startups, traditional VCs are struggling to find their place in the boom.
Amazon Web Services CEO Adam Selipsky speaks with Anthropic CEO and co-founder Dario Amodei during AWS re:Invent 2023, a conference hosted by Amazon Web Services, at The Venetian Las Vegas in Las Vegas on Nov. 28, 2023.
Almost three years into a largely dormant IPO cycle, venture capitalists are in a tough spot.
The private market is dotted with richly valued artificial intelligence startups, including some that are described as generational companies. But venture firms in need of exits aren't going to get relief from AI anytime soon.
That's because, unlike prior tech booms, VCs aren't at the center of this one. Rather, the biggest companies in the industry — Microsoft, Amazon, Alphabet and Nvidia — have been pouring in billions of dollars to fuel the growth of capital-intensive companies like OpenAI, Anthropic, Scale AI and CoreWeave.
With some of the most well-capitalized companies on the planet flinging open their wallets to fund the generative AI craze, the normal pressures to go public don't apply. And even if they did, this batch of startups is nowhere near showing off the profitability metrics that public investors need to see before taking the plunge.
Tech giants have more than money. They're also throwing in tangible benefits like cloud credits and business partnerships, packaging the types of incentives that VCs can't match.
"The AI startups we talk to are having no problems fundraising at robust valuations," Melissa Incera, an analyst at S&P Global Market Intelligence, told CNBC. "Many are still reporting having too much unsolicited investor interest at the moment."