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San Francisco AI Companies Got $11B in Funding So Far This Year

Written by Kevin TruongPublished Jul. 10, 2023 • 3:26pm
OpenAI, the company behind ChatGPT, received $10 billion from Microsoft in the first quarter of the year. | Source: Jakub Porzycki/NurPhoto via Getty Images

Nearly half of all funding for Artificial Intelligence and machine learning startups worldwide in the first three months of this year went to San Francisco companies, according to the venture capital database Pitchbook.

Out of the $22.7 billion that investors put into these companies in the first quarter of 2023, $11.1 billion went to San Francisco-based firms, according to the data. That means San Francisco AI companies are on pace to break their 2021 funding record of $11.9 billion over 411 deals. 

The vast majority of the money went to ChatGPT developer OpenAI, which received $10 billion from Microsoft in a complex partnership deal that includes supercomputing capacity, cloud services from Microsoft Azure and research collaborations between the two companies. 

Deals have gotten bigger on average, while there have been fewer of them, a pattern that often emerges as a sector matures and investors target larger players in the space.

In order to sustain its momentum, OpenAI has developed annual median compensation packages for software engineers that are worth over $900,000. 

Globally, AI and machine-learning companies raised $22.7 billion across nearly 1,500 deals in the first quarter of the year. Over the entirety of 2022, they raised $85.6 billion over 7,900 deals, Pitchbook found. 

Alumni Ventures, Sequoia Capital and SOSV are among the most active venture capital investors in AI firms since 2017, according to Pitchbook.

A majority of the funding so far in 2023—around $12.7 billion—has gone to generative AI, which refers to the vertical that’s focused on producing text, imagery, audio and data content. 

On the other hand, companies developing domain-specific AI software are seeing a drop off in interest from investors, raising a mere $6 billion in the first quarter after drumming up a whopping $50.6 billion in 2022.

Pitchbook noted that larger companies have also joined in the AI hype through acquisition. One example is San Francisco data science company Databricks, which has been on a bit of a buying spree. 

In the first half of 2023, Databricks has announced the acquisition of AI data storage startup Rubicon, AI-based security startup Okera and open-source generative AI startup MosaicML

Also of note are a number of mega-funding deals in the second quarter that were not recorded in the Pitchbook data, which only covered the first quarter of the year. Second quarter deals included $450 million for Anthropic, a San Francisco company founded by former OpenAI employees, and another $300 million in equity funding for OpenAI. That means the firm is now worth more than $27 billion. 

San Francisco leaders have been banking on an economic recovery of its beleaguered Downtown aided by the city’s central role in the development of AI technology. 

Mayor London Breed has declared San Francisco as the “AI Capital of the World” and a recent report from commercial real estate firm Avison Young identified nine AI companies looking for more than 700,000 square feet of office space in the city. 

Kevin Truong can be reached at kevin@sfstandard.com


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