Today’s AI funding rush reminds me of the fintech investing hype of 2021

It turns out that the massive $642 million round that U.S.-based GPU compute provider CoreWeave just closed was a secondary transaction. I can’t summon a better news event to summarize the current state of investor interest, venture included, in AI-related startups.

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The ongoing frenzy to invest in AI startups is not a local phenomenon: German AI company Aleph Alpha closed a $500 million Series B in November, and France’s Mistral AI is currently tipped to be closing in on €450 million at a €2 billion valuation, after raising a $113 million seed round earlier this year. Then we have OpenAI’s in-process secondary transaction that could go through at a valuation of nearly $90 billion.

The list doesn’t get any less hotter if we include recent eight-figure investments instead of those worth nine figures or more.

Parsing a list of recent AI funding events put together by Crunchbase, we can find more stand-out companies: Rohirrim (generative AI for enterprise) just raised $15 million; Atomic Industries (AI tuned for industrial production) raised $17 million; and Assembly AI (AI speech models) closed a $50 million round.

Those are all from December. And today happens to be December 5.

If we rewind to include November, we can add more names:

Suffice it to say the list goes on and on.

I am not going to say that AI-related startup funding will set records this quarter. Hell, startup funding trackers and reporting can’t even sort out whether Q3 2023 was a boom or a bust. But what matters is that we are seeing an investment frenzy that is very reminiscent of the last venture cycle. Remember when fintech startups were raising one of every five venture dollars?

Flybridge partner Jesse Middleton tweeted some data yesterday that should sound familiar:

Sure, AngelList is hardly the entire startup market, but it’s a big enough sample size to explain what’s afoot.

A bunch of fintech companies that had been valued akin to SaaS companies back in 2021 wound up being worth a lot less. Today, funding is down, the exit market is frozen, and fintech is now aboard the struggle bus instead of skating toward a warm horizon.

Will AI see a similar boom-and-bust run of fortunes? Jason Lemkin, who heads SaaStr, told me that the current race to fund AI startups is not targeting mere $10 billion exits. Instead, he thinks, the secondary interest in OpenAI at its last known price tag implies that a bunch of $1 trillion companies are brewing today. Otherwise, the logic goes, the investment doesn’t make sense.

Anshu Sharma, formerly of Storm Ventures and now CEO of Skyflow, offered the following as partial explanation of what’s going on:

That demand tailwind is filling the sails of many startups. So the question now is not whether these startups will find folks to sell to. Instead, it’s whether they can deliver on what they promise.

Venture capital’s bets today therefore result in a bigger tech risk than we have seen in recent venture cycles — there isn’t much of this kind of wagering happening in, say, enterprise SaaS.

With so much money chasing AI companies, if the current crop of these startups fails to deliver on their promises, it won’t be due to a lack of effort and support. Let’s see how far AI tech can progress and penetrate the market in the next few months.

We’re seeing a lot of folks push their capital into just a few squares on the betting table. One way or another, the result is going to be notable.