Where’s all the money gone? Even AI startups struggling to find investors

Record lows in capital raised, a slump in deals and valuations. Statistics on new investments in startups and businesses remain grim despite the ongoing AI craze. So where’s the smart money going? It’s most probably sitting, learning, and waiting, according to VC managers.

If a startup manages to raise money this year, it must be really special to investors and include some AI, ML, or LLM keywords in its business plan. Nearly a fifth of total global venture capital (VC) funding this year has come from the AI sector alone, according to Crunchbase.

However, even with the artificial intelligence (AI) surge, investments pale in comparison to previous years.

Global venture funding has fallen to its lowest level since the second quarter of 2020, when it was disrupted by the then-raging pandemic.

Just 16 unicorns were minted in the second quarter, a level unseen since 2014, dealroom.co data shows. The total unicorn count this year is 43, with a large proportion, at least seven, specializing in AI technologies. Two more are in semiconductors, with other well-represented segments including healthcare and climate tech.


As VC funds exhaust their dry powder, up their reserves for existing portfolio companies, and revisit discounted opportunities, seed-stage deal sizes have started to stagnate, according to a report by PitchBook.

KPMG noticed that VC investors in Europe continued to play a waiting game, with investors holding back on making major investments. Particularly late-stage investments, given the amount of uncertainty in the market and the lack of exit opportunities.

In total, venture capitalists scrambled $84 billion of investments globally in Q2 this year, a 41% decrease year-over-year. And Q1 wasn’t much better. At $89 billion, even the contribution of deals such as OpenAI’s $10 billion and Stripe’s $6.5 billion did not stop the decline this year, dealroom.co calculated.


Cybernews asked VC managers what they think smart money is doing now, and their opinions on AI investments. There’s caution against rushing in to invest right now, just because AI is a hot new tech.

At least 7 notable tech unicorns emerged this year:

  • Character.ai is a neural language model chatbot service that can generate human-like text responses and participate in contextual conversations.
  • Synthesia is a synthetic media generation platform used to create AI-generated video content.
  • RunwayML is a platform for artists to use machine learning for media ranging from video and audio to text.
  • DeepL Translator is a neural machine translation service
  • MosaicML is a generative AI platform for business to build their own AI.
  • Adept AI is a machine learning research and product lab that builds general artificial intelligence.
  • CoreWeave is a specialized cloud provider, delivering a massive scale of GPUs for AI computations.

Amongst semiconductor unicorns were FADU Technology from South Korea and Yuze Semiconductor, manufacturer of N-type solar monocrystalline silicon rods and silicon wafers.

AI-enabled workflows are already a basic expectation

A metrics-driven approach plays a pivotal role in scaling companies for Saanya Ojha, partner at Bain Capital Ventures, working with growth-stage founders building next-gen software products.

She acknowledges the importance of AI, but the first thing investors want is “great teams solving big problems in a scalable, profitable way.”

“The smartest people I know are in learning mode right now – watching the space unfold intently and trying to ascertain where value will accrue in this new paradigm,” Ojha said. “Of course, a lot of attention right now is on Generative AI as a trend given it cuts across every vertical. We are in the very early days of a transformative technology that will fundamentally alter the way we work and the attention it is getting is warranted.”

Saanya Ojha

Even in the tough market conditions, she doesn‘t think that there‘s anything different in what investors are looking for.

“The difference is in the willingness to pay, given valuation multiples have normalized to historical averages down from a period of above-average premiums. Ultimately, the public market dictates the exit outcomes, which trickles down into the valuation math for private companies,” she described.

She sees AI primarily as an enhancing technology, not a platform-shifting one. Therefore, AI is most beneficial to companies that are already in control of data and distribution or have a first-mover advantage. AI-enabled workflows are already a basic expectation.

“I think anyone who doesn’t adapt will get left behind. Even if you’re not someone who needs to embed generative AI into your end product, you should be thinking about how to leverage it internally for sales enablement, customer support, content marketing, and code generation to make your organization leaner and more effective otherwise, you’ll be at a systemic operating margin disadvantage to any of your competitors that do,” Ojha described.

Cybersecurity, according to her, is always an area to look for worthy investments because of acute problems and high stakes.

“As more of our lives move online, individuals and enterprises are constantly fending off invisible threats from faceless attackers and the fate of nations can hinge on the click of a mouse. It is no wonder then that cybersecurity is one of the largest markets in the world with the addressable opportunity only expanding as the vectors of attack multiply.”

“This may be the best time ever to be investing in enterprise tech”

If you have money and the right access, the market may offer opportunities of a lifetime, as the valuations are reasonable and new technologies are emerging, according to Chad Cardenas, founder and CEO of The Syndicate Group (TSG), a venture firm.“For investors, if you have the right access to the best companies and deals, this may be the best time ever to be investing in enterprise tech. Although funding is drying up for the below-average and average companies, capital is still flowing for the exceptional companies, making them easier to spot. Additionally, the valuations are more reasonable, so everyone wants access to invest in fewer companies/deals.

Those who bring the most value to the company alongside the capital are being granted access,” he opinionated.

According to him, investors are looking “for all things cyber and all things enterprise tech,” as corporations’ needs have not slowed, and they continue to grow. AI is a leverage to enhance traditional solutions, and those types of technologies are getting a lot of attention.

“I see great promise in technologies that can help an enterprise cut costs, increase revenue, and/or protect their people and assets. AI is a hot topic that has lots of investors excited now, but these priorities are evergreen and will always be at the forefront of business operations, so the continued advances in enterprise tech solutions that focus on those will continue to do well moving forward,” Cardenas concluded.

While AI is attractive to investors in certain applications, he sees cybersecurity as an area “extremely worthy of investment.” Rising threats outpace the solutions and companies are struggling to keep up.

“We’ve seen this result in corporation’s continuing to increase their IT budgets, meaning that the market continues to grow,” Cardenas said.

Spending dollars on shares now also provides the advantage of lower valuations – shares cost lower now per value received. However, it’s all relative.

“On average, valuations tend to be much lower now than they were two years ago, but I’m sure they are still higher than some folks think they should be,” he said.

While cyber and AI companies are receiving higher valuations on average, the bottom 80-90% are getting crushed. Valuations should be compared more specifically amongst the peers in the sector and class of companies.

Challenging environments are where visionaries are born

Anis Uzzaman, founder and CEO of the global venture capital firm Pegasus Tech Venture and Chairman of Startup World Cup, remains steadfast in his conviction that sophisticated capital is gravitating with increasing momentum toward the tech sector.

“The technological investment landscape, although fiercely contested, now prioritizes startups showcasing transparent paths to profitability and appealing to expansive markets. Among the transformative technologies catching the discerning eye of institutional investors, artificial intelligence (AI) and machine learning stand out,” he said.

He sees AI not as a fleeting trend, but rather as a seismic shift in industry paradigms, presenting unparalleled advantages across sectors

“AI's myriad applications – from revolutionizing healthcare to reshaping retail – are arenas we're keenly exploring for potential investments. Similarly, the significance of cybersecurity becomes unmistakably prominent. Once a specialized niche, cybersecurity has metamorphosed into an indispensable mainstay in our interconnected world. Cybersecurity is no longer a reactive measure but a proactive necessity for organizations and governments,” Uzzaman shared.

Cybersecurity will benefit from tighter regulatory environments worldwide and the need for compliance. It could also become one of the foundational aspects of the future digital economy.

The prevailing macroeconomic landscape, intertwined with the notion of expensive money, challenges the growth prospects for tech startups.

“While the path is rife with potential, it calls for astute discernment and flexibility. Ironically, this vibrant landscape signals the emergence of the next cohort of tech visionaries,” Uzzaman believes.

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