It’s not just a buzzword anymore: say artificial intelligence once in a pitch and the investor’s ears perk up instantly. The huge technological, economic, and cultural shift that generative AI brings is undeniable.
AI opens up a whole new frontier in the venture world and everybody wants a piece of the pie. According to PitchBook, in 2023 we saw funding for AI-based startups top $68.7 billion, and that’s without the numbers for the last quarter.
But what separates the groundbreakers from others? Here’s the definition of a promising AI startup from an investor's perspective:
A loyal customer base [in thousands], a good grasp of using AI solutions to penetrate the market, loads of useful data to fine-tune AI models for various segments, plenty of capital, and an exceptional team.
Let’s run through startups that impressed in 2023 and are poised for success in 2024. Read on to find out about their innovative products and the unique value proposition they provide to customers.
OpenAI paves the way and continues to inspire
Type of AI technology: pure generative AI models, second-tier models & apps built for specific text & image generation tasks.
Valuation: $27 billion.
Innovative solutions & value proposition: a technology that allows businesses to make various types of AI apps and empower people to easily create textual and visual content for business, marketing, social media, etc.
ChatGPT was a groundbreaking project that captured a global audience. Impressing everyone by taking the bar exam by storm and forever changing the way students do their homework. It was a palpable innovation.
The Dall-E image generator had a similar effect, and so there’s hardly anyone who hasn’t used these two tools for one purpose or another. The models behind these products power up many other innovative solutions, such as the Jasper marketing AI genius that has already matured into an enterprise product.
In 2023, we saw OpenAI transition from an innovation studio into a product company aimed to conquer the market. And there's no doubt it will wreak havoc in 2024 as well.
The company raised more than $11 billion to date and now has a valuation of over $27 billion. It’s a force to be reckoned with in the venture world supported by industry giants like Microsoft, Sequoia Capital, Andreessen Horowitz, Thrive, and K2 Global.
Recently, OpenAI was in talks for opening a new funding round at an explosive $100 billion valuation.
Scale AI hosting a treasure trove of AI training data
Type of AI technology: large collections of labeled data for training AI models.
Valuation: $7.3 billion.
Innovative solutions & value proposition: a platform providing necessary data for developing AI models, as well as all the tools needed for data labeling and AI training.
Having a generous amount of accurately labeled data, like properly labeled images of animals, is crucial to effectively train an AI model capable of accurately identifying various images.
Scale AI provides the software and manpower to label text, images, and voice inputs. However, the company offers more than just adorable pictures of people, pets, or objects. It provides a wide range of data labeling and training solutions, contributing to the advancement of AI technology across multiple sectors.
Their services are highly regarded by businesses specializing in self-driving cars, personalized online shopping, and robotics. Among their high-valued customers are Toyota, NVIDIA, SAP, and Standard Cognition.
Scale AI is treasured by investors as well, with a valuation of $7.3 billion and a total of $603 million raised to date.
Hugging Face open-source repository for AI models
Type of AI technology: infrastructure and tools for creating and supporting new AI products.
Valuation: $4.5 billion.
Innovative solutions & value proposition: a platform that provides ready-trained AI models for incorporating them into apps, the tools for creating new AI models, as well as the storage infrastructure for hosting them.
Hugging Face has rapidly emerged as the premier open-source hub for anyone seeking to build and train large language models (LLMs). For that, it has been dubbed "the GitHub of AI”. In addition to hosting these AI models, it offers the tools to optimize their performance.
One of these tools is the Transformers library, allowing developers to seamlessly incorporate state-of-the-art NLP models and power up apps able to interact with users via text prompts and voice commands.
Hugging Face has raised $235 million in a 2023 Series D funding round, backed by industry giants: Google, Amazon, Nvidia, Intel, AMD, Qualcomm, IBM, Salesforce and Sound Ventures. The company is now valued at a whopping $4.5 billion.
Investors see lots of promise in the AI startup:
The way the team has fostered the open-source community is very exciting. With Hugging Face, users have access to more than half a million shared AI models in an effort to democratize AI and AI building.
Inflection rivals OpenAI with its AI companion
Type of AI technology: pure generative AI models, an AI assistant application.
Valuation: $4 billion.
Innovative solutions & value proposition: an AI assistant that rivals OpenAI’s Chat GPT in various tasks and provides a more personalized experience.
California-based Inflection recently unveiled its AI-powered assistant named Pi. The virtual helper is designed to provide knowledge based on a person’s character, interests, and preferences. The company describes Pi as a compassionate and encouraging companion.
The AI model behind Pi is claimed to be an esteemed competitor to other models in its tier, including OpenAI’s GPT-3.5. And it's not just empty words. Inflection does show impressive results in mastering academic exams and solving common sense, and logical tasks.
The startup has recently secured $1.3 billion in funding from notable investors including Microsoft, Reid Hoffman, Bill Gates, Eric Schmidt, and Nvidia, as they strive to develop a revolutionary "personal AI for everyone”. Its total raised is around $1.5 billion, and the company is currently valued at $4 billion.
Character.AI brings personality to virtual chatting
Type of AI technology: second-tier AI model and chat application.
Valuation: $1 billion.
Innovative solutions & value proposition: an AI platform allowing users to create their own chat characters based on real-life personalities of well-known historical figures, celebrities, and fictional characters.
Character.AI was once at the top of the Insider's most promising generative AI startup list. The startup distinguished itself from its competitors by leveraging third-party models to build its AI solution.
The platform lets users bring their favorite real-life personalities to life by creating doppelganger virtual characters and engaging in captivating conversations with them.
You can literally recreate anyone, from Elon Musk to Jeff Bezos, Shakespeare, Ed Sheeran, or Eminem. The AI mimics the persona and speech style of the selected character to provide the ultimate conversation experience.
The startup claims to have pulled in over 1.7 million users in less than a week after its launch to market. Character.AI scored a $150 million Series A investment in March of 2023, backed by Andreessen Horowitz, nabbing a coveted $1 billion valuation.
Stability AI stuns with striking imagery, videos, and music
Type of AI technology: second-tier models and apps for specific image, video, and audio generation tasks.
Valuation: $1 billion.
Innovative solutions & value proposition: applications that empower people to easily create textual, visual, and audio content for business, marketing, social media, etc. These apps can also help the creatives to be more productive at their jobs.
Starting with an impressive image generation model, Stability AI has made leaps forward in 2023, introducing its tools for creating 3D models, animating images to generate videos, and even composing music out of text prompts.
With these breathtaking achievements, and $111 million raised overall, the company has all the merits to confirm its unicorn status with a valuation of over $1 billion. Their latest convertible note round of $50 million was backed by none other than the Intel corporation.
Captions provides its intelligent video editor
Type of AI technology: a second-tier AI model and an app for video generation and editing tasks.
Valuation: $250 million.
Innovative solutions & value proposition: an application that allows to augment the video-making and editing process, making it more productive and sparking up greater creativity with tools powered by AI.
Captions makes video editing much easier, letting its users edit, caption, dub, and add effects to their videos with little to no effort. Investors are hooked and speak very highly of the project:
Captions has emerged as the leading AI-powered platform for video content, and millions of users have already leveraged it to tell their stories and engage audiences.
Andreessen Horowitz, Kleiner Perkins, Sequoia Capital, and SV Angel are among the venture funds backing the startup. According to the company, it has already raised over $40 million, with the latest round of $25 million in 2023, and has serious plans to stick its teeth deeper into the market.
Predibase low-code platform for building AI software
Type of AI technology: infrastructure and tools for building large language AI models.
Valuation: undisclosed with $30 million raised.
Innovative solutions & value proposition: a platform for AI developers providing shortcuts and drastically simplified ways of building artificial intelligence models and applications.
Piero Molino, co-founder and CEO of Predibase describes the startup’s goals very vividly:
Our mission is to make it dead simple for novices and experts alike to build ML applications and get them into production with just a few lines of code. And now we’re extending those capabilities to support building and deploying custom LLMs.
2023 was a productive year for Predibase, as they launched a co-pilot assistant for developers to enhance the way they build AI apps and cloud hosting features for models created on the platform.
The company stormed into the venture horizon with a $16.25 million investment led by Greylock. And in 2023, they secured another $12.2 million with Felicis at the helm. That’s close to $30 million straight out of the gate.
Predibase has a strong founding team, led by serial entrepreneurs involved in the evolution of giants, like Uber, Google Cloud AI, and Lattice.io, an AI startup acquired by Apple to improve their stance in the industry.
Treat graces eCommerce with vibrant product photos
Type of AI technology: second-tier AI model and application for creating product & marketing images in eCommerce, with customer analytics features.
Valuation: undisclosed with over $8.5 million raised.
Innovative solutions & value proposition: a solution that simplifies branding and marketing for eCommerce brands, making it faster and more efficient.
Treat allows eCommerce brands to create custom product images and use them to create targeted advertisements based on the customer demographic. The startup captured the intersection of customer analytics and generative AI.
Treat already has several eCommerce giants in the bag, including the Caraway cookware shop and Briogeo hair-care products. They’ve raised an impressive $8.5 million seed round in 2023 led by Greylock Partners.
Linguix gives Grammarly a run for the money
Type of AI technology: second-tier AI model and application for creating and improving text content.
Valuation: undisclosed with over $1 million raised.
Innovative solutions & value proposition: an application that helps people improve their writing, with grammar checking and suggestions on better wording, conciseness, etc.
The writing world was never the same when Grammarly came into the picture with its helpful spell-checking and suggestions. And now Linguix stepped in to take it all to another level. The app provides AI-powered real-time suggestions to enhance text clarity, brevity, captivation, and writing style.
Still in pre-seed, the company already scored over $1 Million in funding backed by Flyer One Ventures and Nitrx Capital.
Experts and investors speak AI influence, development, challenges, and risks
Lareina Yee, a senior partner at McKinsey’s Technology Council, has an interesting perspective on AI’s present and future.
According to her, AI’s influence on the industry can be likened to the transition from mainframe computers, operated by experts in the field, to the PCs and mobile devices that everyone uses today. AI is the new power tool providing people with revolutionary ways of harnessing technology.
So far, startups have been leveraging generative AI in the areas where it's evident the technology would provide bursts of growth and productivity, improving business processes, and increasing the bottom line.
Examples include using generative AI tools to help create better content, revitalize legacy code, or accelerate research & development. We've only just begun exploring the full potential of AI augmentation and its creative capability.
Megh Gautam, Chief Product Officer at Crunchbase draws a line between ‘authentic AI applications’ and apps that are superficially marketed as AI:
The real measure of AI’s success will lie in its ability to address customer challenges and tackle core business issues. Platforms and applications that excel in these areas will win the market while solving business problems in ways that were previously impossible.
Ashley Lundström, partner at EQT Ventures, shares her distinctive point of view on the way AI tech will influence social apps and how people will interact with each other online:
You don’t have to be an expert painter, drawer, or singer to express yourself elegantly. Anyone can have a creative idea and use gen AI to bring it to life. This ease of creation will encourage more expression, more storytelling, and more interaction, seeding the next generation of social platforms. “Look what I made” is the new “what’s on my mind.”
Pegah Ebrahimi, co-founder and managing partner at FPV Ventures predicts how the AI venture world will change in 2024:
Next year will be a year of reckoning for Gen AI. As the novelty factor fades for tourist investors, early adopters who raised at hundreds or thousand times revenue multiples may go bankrupt or get acquired for fractions of their valuations, while the elusive few that find true product market fit will become the new monopolies.
Cathy Gao, a partner at Sapphire Ventures anticipates the challenges AI startups are bound to face this year:
Due to overhyped expectations and free-flowing AI budgets in 2023, we’ll see significant churn among AI companies in 2024 as companies pull back on AI experimental budgets. Many companies will see growth stall and cash burn increase as they figure out business models, including pricing, and deep product market fit use cases. The companies that will continue to grow and thrive will figure out measurable ROI cases and deeply embed into existing workflows.
Rudina Seseri, founder and managing partner at Glasswing Ventures offers her take on the technical side of AI development, and how the trend will shift from general AI models to niche-oriented applications:
Large Language Models will shrink. Domain-specific models will be trained on smaller datasets and outperform general-purpose LLMs. Similarly, emerging architectures that shrink the size of models, such as Liquid Neural Networks, which dynamically adjust the model size by distilling tasks and dropping irrelevant information, will unlock exciting, new deep learning use cases. For instance, in manufacturing, many devices on site lack the processing power to run sophisticated machine learning models but smaller models, that can run on such devices, will unlock new capabilities for edge computing.
Chris Metinko, a senior reporter at Crunchbase thinks venture capitalists will become more stingy toward AI-based technological startups:
2024 will get cold for many hot AI startups, with wary VCs questioning how many winners there will actually be in the generative AI market and pulling back investment to the cash-burning startups.
Conclusion
With increased accessibility and improved capabilities, generative AI is poised to revolutionize fields such as design, content creation, and customer personalization. But that’s just the tip of the iceberg and startup founders will continue gold-digging for product-market fit using AI as the tip of their spear.
Sarah Connor would not be very proud of us today, but if founders continue treating their startups as their beloved children, we should be fine. Striking a balance between innovation and responsible development will be key to ensuring a positive and sustainable future for generative AI.
We hope this list of AI frontrunners inspires young founders to keep pushing the boundaries. And we hope the investors will continue to support the groundbreaking ideas and visions of a new tomorrow.