As far as venture trends and fads go, 2021 was the year of crypto, 2022 was the year of the metaverse, and in 2023, artificial intelligence (AI) holds an early lead in the hearts, minds and wallets of tech’s brightest.
An early leader in the AI space, OpenAI, is one of the biggest talking points in the artificial intelligence space. OpenAI has built applications that train computers to write essays, code and render digital images from prompts using massive swaths of training data.
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ChatGPT, the company’s new conversational AI, is an advancement over the company’s previous innovations in many ways. It not only has the capability of doing many of the aforementioned things well but in a conversational manner, allowing people to carry on a continuous discussion with the bot without breaks in logic. It’s a smash hit with just about everybody — in early February, the chatbot set a record for being the fastest-growing consumer app in history, according to investment bank UBS Group AG.
That newfound demand helped OpenAI land a $10 billion investment from Microsoft Corp. But it’s not just OpenAI that’s on the map — it’s every business, for better or worse, that is building AI that can generate content, code or potentially one day automate workers. Generative AI companies raised over $1.37 billion in 2022, according to data from Pitchbook, and are expected to haul in even more in 2023 thanks to the newfound fervor.
OpenAI wants a piece of the pie it has been pivotal in growing. In December 2022, the company launched the OpenAI Startup Fund, a $100 million venture fund to help prop up exciting new products from up-and-coming AI businesses. The fund announced its first four portfolio companies on Dec. 1, along with its announcement about the fund.
Among them are Descript, an AI-powered video and podcast editing software founded by former Groupon CEO Andrew Mason; a lawyer AI called Harvey; a self-organizing workspace app called Mem; and an AI language tutor called Speak.
OpenAI led most of the rounds for the companies, but in many cases, the Startup Fund was joined by other A-List venture firms such as Andreessen Horowitz (a16z), Peter Thiel’s Founders Fund, Redpoint Ventures and Spark Capital. That underlies just how much demand exists for AI and AI-enabled products, especially among some of the most competitive venture capital (VC) firms.
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There’s just not enough room on the cap table for everybody — and that means that VCs that can’t get cut into fast-growing products will simply back another one. The entire AI-enabled product space is about to become super competitive and potentially buzzwordy in a way not seen since the crypto and Web3 days.
Thankfully for OpenAI, being a builder has its advantages. All the products that it funded use OpenAI’s applications in some capacity — whether that’s to answer legal questions, help users with their grammar or help them edit video. So long as people keep opting to use OpenAI’s ecosystem of products over another, the company will have a competitive advantage with its investment fund.
But that underlies some reality about competition — the OpenAI Startup Fund is intended to turn the company’s head start in the now-packed AI space into an advantage. Strategic investment in products will benefit the company financially as well as keep high-quality products using OpenAI’s tools — likely in a way that boils down to more profit for the company.
There’s always the possibility that OpenAI is funding a usurper, a product that will disrupt its decisive lead in the AI space in any number of ways. It might fund a more popular alternative, a more effective use case or a company that decides to build an alternative to its own products. The product itself could be surpassed by any of the startups bathing in the excess venture money now orbiting around the AI space.
But none of that will matter if OpenAI builds an expansive and profitable relationship with the companies using its products now. Even when somebody builds a product that surpasses OpenAI’s potential, the company won’t care. It won’t need to because it will have already made its money.
For Investors: Thanks to changes in federal law, it’s now possible for everyday investors to invest in top AI startups. This means billion-dollar companies like OpenAI are no longer the only ones capitalizing on these startup investing trends.
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