Generative AI startups make up 60% of new unicorns

Generative artificial intelligence (GenAI) companies have become the major driver of unicorns — startups reaching $1 billion valuation — with 60% of the new ones falling in this category, according to a report from venture capital firm Accel.

Funding in European and Israeli GenAI startups was close to $1 billion in the last 12 months compared with over $14 billion in U.S. ones, though skewed due to a $10 billion funding to OpenAI alone, the report said.

“A very limited number of companies which have attracted a disproportionate amount of the capital… the investment going into the foundational models – we will see that going down,” Philippe Botteri, a partner at Accel, said in an interview.

AI foundation models, developed by Microsoft-backed OpenAI, Meta and others, are capable of generating text, images or other media in response to prompts.

Europe, home to AI startups such as AI video avatar platform Synthesia and Stability AI, is already producing 50% more AI publications than the United States with similar citation rate, according to the report.

“In the future, the money is going to be directed more towards a company like Synthesia for developing applications, then we are going to get to a more normalized balance where we expect a two-to-one (funding) ratio between U.S. and Europe,” said Botteri.

At the end of the third quarter, tech giants ranging from Microsoft to Nvidia, added $2.4 trillion of market capitalization over the last 12 months, fuelled by the potential of AI, the report said.

Botteri expects specialized AI applications catering to cybersecurity, healthcare, construction and legal would gain traction. Reuters