Generative AI startups receive 40% of all VC investments within the cloud: Accel

According to enterprise investor Accel, generative artificial intelligence startups receive 40% of all enterprise capital funding flowing into cloud firms.

In his latest yearbook Euroscape reportAccel said enterprise funding for cloud startups based within the U.S., Europe and Israel is predicted to rise to $79.2 billion this yr, with artificial intelligence driving much of the recovery.

Venture funding within the cloud industry grew 27% annually, marking its first yr of growth in three years. According to the report, cloud startups raised $62.5 billion in Europe, Israel and the US in 2023.

According to Accel, funding is up 65% in comparison with the $47.9 billion cloud firms raised 4 years ago.

This comes after OpenAI, the Microsoft-backed company behind buzzy generative AI chatbot ChatGPT, raised $6.6 billion in an enormous funding round earlier this month that valued the startup at $157 billion.

Much of the expansion in cloud financing is being driven by enthusiasm for AI.

“AI is sucking the air out of the room” in the case of cloud, said Philippe Botteri, partner at Accel, in an interview with CNBC this week. “This is visible in both the public market and the private market.”

As of September 30, the Euroscape Index – an Accel-curated choice of publicly traded US, European and Israeli cloud firms – is up 19% year-over-year.

This pales as compared to the 38% increase recorded by the Nasdaq this yr and can be 39% below the Euroscape index's 2021 peak.

The cloud industry is struggling beyond AI as enterprise software budgets are squeezed by macroeconomic and geopolitical risks.

“There is a lot of uncertainty out there,” Botteri said, adding that firms are increasingly asking questions on geopolitical tensions and macroeconomic aspects which have impacted software spending priorities.

Not a single company in Accel's Euroscape index has posted revenue growth of greater than 40% per yr this yr, in comparison with 23 firms that achieved this feat in 2021.

“IT budgets are shifting toward AI,” Botteri noted. “They are still growing slightly, but by a few percent year-on-year.”

“Part of this consists of budgets for GenAI, developing new applications and testing these new technologies, leaving less for the rest,” the VC investor added.

According to Accel's Euroscape report, the six largest generative AI firms within the US, Europe and Israel accounted for about two-thirds of the funding raised by all genAI startups.

OpenAI raised a major $18.9 billion in 2023-2024, taking the lion's share of VC funding that went to US GenAI firms.

“If you look at OpenAI and the speed at which it reached over $3 billion in revenue, this was one of the fastest software companies ever,” Botteri said.

Anthropic raised the second-largest amount amongst genAI startups within the US at $7.8 billion, while Elon Musk's xAI took third place.

In Europe, the biggest funding amounts went to the British company Wayve, the French company Mistral and the German company Aleph Alpha.

Globally, firms developing so-called base models that power much of today's generative AI tools account for two-thirds of the entire funding for generative AI firms, Accel said.

The US took the worldwide lead in total regional investment in generative AI.

Of the entire $56 billion that flowed into GenAI firms worldwide between 2023 and 2024, about 80% of the cash went to U.S.-based firms, Accel said, also noting Amazon, Microsoft, Google And Meta Each of them invests, on average, a staggering $30 billion to $60 billion per yr in AI.

AI “majors” like OpenAI, Anthropic and xAI are spending billions on the technology, in accordance with Accel, while smaller challengers like Cohere, H and Mistral are investing tens to a whole lot of thousands and thousands per yr.

Dev Ittycheria, CEO of database company MongoDB, noted that the concentration of probably the most powerful AI models will likely be concentrated in only just a few select players who’re capable of attract the capital crucial to take a position in data centers and chips for training and development to take a position within the operation of their systems.

“Access to capital will profoundly impact the performance of these models,” Ittycheria said in an interview on CNBC’s “Squawk Box” on Tuesday. He added: “I bet that over time there will be not so many model providers, but just one or two.”