Silicon Valley Bank has just released a report on VC funding for AI, which shows that 40% of the capital raised by US VCs last year came from AI funds, up from 10% in 2021.
But despite the billions being poured into AI companies, investors still aren’t getting returns. It’s triggered an increase in the number of what the report calls “zombiecorns,” or companies “with poor revenue growth and unit economics” that are struggling to raise money or make IPO.
Sam Hields, Partner at early-stage tech VC OpenOcean, said: “The Silicon Valley Bank (SVB) data confirms what we already knew: AI is the gravitational force in venture capital. As capital gets more and more concentrated into AI, we risk sucking the oxygen out of the room for other breakthrough technologies.
“Today, folding an LLM into your product is enough to claim an ‘AI badge.’ That’s perfectly natural – and, in many cases, it’s trivial to implement. But it won’t deliver durable returns. Real value creation comes from bringing AI into more meaningful parts of our lives – like automating care work, for instance – where it can support sectors that are chronically understaffed and critical to our social and economic wellbeing.
“SVB is right to warn us about the rise of ‘zombiecorns’. If we avoid the temptation to over index into dead-end, ‘wrapper-ware’ startups and push against the crowding out effect on deeper R&D, we have a chance to channel enthusiasm for AI into solving real, structural problems. That’s where the real alpha comes in.”
