IPO Market Struggles as Investors Flock to AI

Venture capital firms are reportedly struggling amid a lack of mergers, acquisitions and public listings.

It’s a situation that has led to a liquidity drought as artificial intelligence (AI) startups draw investor attention, CNBC reported Thursday (Nov. 14).

“In the U.S., when you talk about the presidential election, it’s the economy stupid. And in the VC world, it’s really all about liquidity stupid,” Edith Yeung, general partner at Race Capital, a Silicon Valley early-stage venture capital (VC) firm, said at CNBC-hosted the Web Summit tech conference in Lisbon.

Yeung said the lack of initial public offerings (IPOs) in the past few years had fostered a “really tough” environment for the VC world. Meanwhile, investors are clamoring to back AI companies.

“What’s really crazy is in the last few years, OpenAI’s domination has really been determined by Big Techs, the Microsofts of the world,” Yeung said.

Larry Aschebrook, founder and managing partner at late-stage VC firm G Squared, agreed that the search for liquidity is getting harder — even though companies such as OpenAI are enjoying massive funding rounds, which he called “a bit nuts.”

“You have funds and founders and employees searching for liquidity because the IPO market is not happening,” Aschebrooke said. “And then you have funding rounds taking place for generational types of businesses.”

As PYMNTS wrote last year, AI companies raised $11.8 billion during the third quarter of this year, accounting for approximately 30% of total VC investments worldwide.

“The AI sector remains a long-term growth opportunity for VC investors despite the volatility seen in recent months,” Stocklytics wrote. “Although they are being more selective about which AI startups to back, the overall interest remains strong, and Crunchbase data proves this.”

Although this figure marks a slight drop from prior quarters, Stocklytics reports it represents the sixth-largest quarterly funding total in the sector’s history. The number of deals decreased 28% year-over-year to 79, but more substantial investments, such as a $1 billion round for Safe Superintelligence, have helped to lift overall funding levels.

AI startups had — as of that writing — raised a record $53 billion for the year, exceeding the $49.4 billion raised in the entirety of 2021. This brings funding in the AI sector to over $241 billion, with U.S. companies, especially those in California, securing nearly 65% of the total.