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After looking at the last quarter in venture capital from various angles, I have to admit it was quite gloomy. Even AI didn’t change the picture that much, but its impact is starting to show in other ways. — Anna
Limited optimism
This month, The Exchange dove deeper into Q3 2023 venture capital data, taking a closer look at specific regions, countries and sectors to add nuance to the numbers. I am glad we did, but I also have to acknowledge that our findings were pretty thoroughly summed up in our initial overview: Once again last quarter, the global VC market continued to stumble.
We still found some reasons for optimism in Europe, until we didn’t. Yes, investment volume slightly grew in the region compared to Q2 2023, according to PitchBook. But with macroeconomic and geopolitical worries failing to recede, we can’t bet on a recovery of exits and late-stage investing in the short-term.
I am also glad we summed up Q3 in charts. But as we did them, it was also quite dispiriting to see that Latin America and the rest of the world, including Africa, barely registered in terms of dollar volume share.
But one of the data points that stuck with me is that Canadian startups, too, had a tough Q3; AI’s popularity didn’t make a big difference, despite the country’s edge in the matter.
That said, Crunchbase found that AI startups globally raised more or less the same amount in the third quarter of this year than in Q2: some $10 billion. But when Anthropic secured $1.25 billion in funding that could eventually reach $4 billion, it was from Amazon, not from a venture capital firm.
On a related note, it is Big Tech indeed that seems to be reaping the first rewards from AI. As our editor in chief Alex Wilhelm wrote, “a close reading of Alphabet’s and Microsoft’s third-quarter results shows that new AI tech is helping some of the world’s biggest companies grow their revenues.”
There’s still hope that AI-related demand will benefit startups, but how and when remains to be seen — and will also depend on some critical decisions from their leaders.
AI boosting the rise of CPOs
Remember how chief product officers were becoming more prominent in the C-suite? A new report from Products that Count (PTC) expects this trend to continue as a result of AI adoption.
“To harness the true potential of AI,” the report states, “CPOs must lead cross-functional efforts, collaborating closely with the Chief Technology Officer (CTO), General Counsel (GC), and Chief Information Security Officer (CISO). The success of AI implementation hinges on their collective vision and strategic guidance.”
An organization dedicated to “promoting the significance of product management,” PTC has a horse in the race, and it is still unclear whether CPOs will always lead these discussions or simply be part of the conversation. But it does make sense for AI implementation to be a cross-functional effort that focuses on bringing value to the end user; and to be fair, that does have a lot to do with product management.
AI investors’ predictions and warnings
Our three-part investor survey on AI is now live, and I highly recommend reading the full series. Part 1 focuses on where VCs are placing bets and the direction they’re seeing things heading; part 2 examines how startups can capture and defend market share; and part 3 looks at the pros and cons of open source business models.
5 investors on the pros and cons of open source AI business models
The debate on open versus closed source is a recurring one, but what I find interesting in AI is that risk isn’t always on the same side. For instance, Prosus Ventures investor Ting-Ting Liu said that “startups probably do face a fair amount of platform risk if they depend exclusively on closed-source models accessed by APIs.”
There’s pricing risk, of course, but features could also change significantly, or “the owners of proprietary models could decide to remove the API access altogether,” she warned. Yet another reason for startups to build more than just a wrapper, right?
