As AI technology and programs like ChatGPT evolve, the way venture capitalists think about investing in startups it is changing.
Investor Leah Solivan, founder of freelance marketplace TaskRabbit, who sold to Ikea in 2017has been working as a venture capitalist for the past eight years. She currently works with startups building AI products as a general partner at early stage fund Fuel Capital.
The process to build an AI company is “very expensive,” she says.
Leah Sullivan. (Photo by Chance Yeh/WireImage)
“(AI) is a huge game-changing technology, but the costs are still so high to get something off the ground,” Solivan said entrepreneur Jeff Berman last week. “Startups need to raise a lot more money to get started now.”
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AI models can require more than $100 million to develop, according to Anthropic CEO Dario Amodei.
Solivan says the cost of AI is changing where a smaller seed-stage fund like Fuel Capital invests. Big industry players like Microsoft and Nvidia, who have invested billions of dollars in AI companies can afford to invest in expensive AI startups — but smaller, early-stage funds may not see the return on investment they're looking for.
So, smaller funds may strategically choose to move into AI startups because of the high price, even if those startups are developing advanced technology.
“It's almost like when we were looking at hardware companies and we were like this is going to take a lot of capital, the ROI on our investment, the math just doesn't work for our fund,” Solivan explained. “It takes really deep pockets to be successful. I think it's harder for smaller funds to play here.”
In 2023, HE was one of the best industries for growth in unicornsor startups with at least a billion dollar valuation.
AI was also the sector with the biggest jump in funding last year, with AI startups collectively raising $50 billionalthough the year was tough overall for startup fundraising.
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