AI Race Sees GenAI Startups Pull 40% Of All VC Investments

It’s no secret that artificial intelligence (AI) and generative artificial intelligence (GenAI) are the talk of the town among users, startups, SMBs and enterprises.

Basically, its impact has been felt across the world and touched various industries. It’s no surprise that venture capital firms are betting big on the AI revolution.

However, how is it affecting other technologies? This is what leading venture capital firm Accel looked to find out in the latest edition of its Euroscape report, which studies Europe’s cloud ecosystem.

What Did Accel’s Euroscape 2024 Report Say?

According to Accel’s Euroscape 2024 report, 40% of venture capital funding for cloud companies is now being directed toward GenAI startups.

Essentially, this highlights the significant impact AI and GenAI are having on the broader cloud and technology industries.

The report finds that venture funding for cloud startups, spanning the US, Europe and Israel, is expected to rise to $79.2 billion by the end of 2024. This growth will majorly be driven by the increasing focus on AI innovations, AI technology and AI tools.

Furthermore, this surge in funding marks the first year of growth in three years for cloud companies, with cloud startups raising $62.5 billion across these regions in 2023.

In comparison, cloud firms raised $47.9 billion and represents a 65% increase, four years ago.

The growth in the AI and GenAI sector is influencing and reshaping investment priorities and cutting out other technologies in the cloud space.

As a result, IT budgets are being redirected toward AI and GenAI applications affecting investment in other software areas.

On the bright side, public and private markets are showing signs of recovery, courtesy of AI, which is fueling innovation and opportunities, the report finds.

What Did Accel Say About Its Report?

“GenAI is fueling public and private market recovery, unlocking unprecedented opportunities and innovation. The NASDAQ keeps climbing higher, up 38% in the last 12 months and beating new all time highs.”

“Out of the $8.4T of value created in the past year, $5.3T is coming from the six tech titans that are investing tens of billions into AI: Apple, Microsoft, Google, Meta, Amazon and NVIDIA.”

“AI is also proving an accelerator on the private side as funding of AI and cloud companies is on the rise again, estimated to hit $79.2B at the end of 2024 after three consecutive years of decline.”

“Outside of the AI world, the outlook isn’t as bright and the era of high software growth has been replaced by a focus on profitability.”

What Did Accel Executives Say?

 

• Through the report, Philippe Botteri, Partner at Accel, said, “AI is rewriting software - literally and figuratively - unlocking unprecedented growth, productivity and opportunities across the public and private markets.

• [Contd.] “We expect to see another leap in productivity next year as the first generation of agentic models come to the market, enabling the next wave of task and workflow automation in the enterprise.”

However, Botteri provided more comments in an interview with CNBC.

“AI is sucking the air out of the room [when it comes to cloud]” said Philippe Botteri.

“This is both visible on the public market and the private market. There’s a lot of uncertainty out there,” added Botteri.

“IT budgets are shifting towards AI. They are still growing slightly, but they are growing a few percent year-over-year ... Part of it is budgets going toward genAI, building new applications, testing these new technologies, so there is less for the rest."

“When you look OpenAI and the speed at which the road to over $3 billion in revenues, this has been one of the fastest companies in software of all time.”

Do you think the big investments made in AI startups are justified? Do you think this technology will continue to fuel the future of diverse industries as it is now or do you think this is a temporary wave?

Let us know in the comments below!