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AI startups continued to outpace the overall U.S. venture capital market in the first quarter of 2020, but the coronavirus pandemic is expected to have a severe impact on funding across all sectors for the rest of the year.
According to data from the National Venture Capital Association, 285 AI-related companies in the U.S. raised $6.9 billion in the first quarter of 2020. At that pace, AI funding would have easily topped the $19.98 billion raised by 1,509 companies in 2019, according to the Q1 2020 PitchBook-NVCA Venture Monitor. The report adjusted the latter up from its previous report of $18.05 billion for 2019.
Those figures are the lastest sign of the growing impact technologies such as artificial intelligence and machine learning are having on an expanding range of industries. As algorithms and data collection methods grow and mature, venture capitalists are increasingly willing to bet on startups they believe could be the big winners in this emerging era of computing.
AI startups had been seeing strong momentum throughout 2019, even as the broader venture capital market declined slightly.
In contrast to AI funding, the overall VC market was roughly flat in the first quarter of 2020, even before coronavirus lockdowns had a major impact. According to the report, 2,298 companies raised $34.2 billion, a pace that would have just about matched the $136.1 billion raised in 2019.
However, it should be noted that the amounts raised in 2019 and 2018 still represented big leaps over the annual average rate for the previous decade.
Of course, this momentum is expected to be sharply curtailed in the current quarter as venture capital, like all sectors of the economy, suffers a big hit.
“Venture investors, who had $121 billion in dry powder as of mid-year 2019, have not stopped investing, but many are being more conservative in their approach,” the report says, taking an early pulse on the current state of affairs. “The focus has primarily turned to their existing portfolio companies, ensuring companies have enough cash runway and stressing efficiency. New deals are still happening, but most of these had already been in the pipeline prior to the onset of the pandemic. Investment pace will likely slow down if shelter-in-place orders are still in effect once deals that were already in progress or in the pipeline are completed, since VC is a business that revolves around in-person meetings with founding teams before making an investment.”
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