EMERGING TECH RESEARCH

Vertical Snapshot:
Generative AI
VC trends, industry overview, and market landscape

REPORT PREVIEW
2023 The full report is available through
the PitchBook Platform.

Published March 22, 2023

Contents
Executive summary 3 Institutional Research Group

Introduction 4 Analysis

Technology and processes 5 Ali Javaheri Associate Analyst, Emerging Technology

[email protected]
Tech stack 7
[email protected]
Timeline 8
Brendan Burke Senior Analyst, Emerging Technology
Industry drivers 12 [email protected]
[email protected]
Market size 14
Data
Outlook 15
Matthew Nacionales, Data Analyst
Considerations 17

Taxonomy 18 Publishing
Market map 23 Report designed by Drew Sanders

VC activity 25 Published on March 22, 2023

Key players 29

Key partnerships 33

Key acquisitions / deals 34

Glossary 37

Vertical Snapshot: Generative AI CONFIDENTIAL. NOT FOR REDISTRIBUTION. PG 2

Executive summary
• VC investments soar in natural language interfaces, 2D media, AI Core, and biotech software. Microsoft’s $10.0 billion financing commitment for OpenAI and Alphabet’s VC mega-
startups. Between 2018 and 2022, natural language interfaces and 2D-media generation deals for Anthropic and Cohere stand out for their scale, yet Meta, Spotify, and Apple have
captured 29.3% and 18.8% of VC-backed deals, respectively, and 23.6% and 11.4% of total made significant acquisitions in generative audio as well. These investments come after a
dollars invested, respectively, in the generative AI space, making them the leading applied relatively quiet period for hyperscaler acquisition activity in AI, demonstrating that tech giants
segments of the technology. Within the natural language interfaces segment, chatbots, now require urgency to prevent disruption.
voicebots, and personal assistants captured $544.9 million in 2022—or 59.6% of all dollars
invested in the segment. For the 2D media segment, avatars and video generation and editing • New business opportunities from generative foundation models will rely on user experience.
accounted for 37.7% and 40.8%, respectively, of all VC dollars invested in the segment in Generative foundation models are still in their infancy, but this presents an exciting chance
2022. AI Core, which includes foundation model developers and infrastructure for model for basic innovation to produce better user experiences. We have already seen commercially
development, raised a whopping $5 billion from VCs between 2018 and 2022. Remarkably, even successful products based on generative transformer and score-based diffusion models, so a
biotech startups utilizing generative techniques have been hot destinations of VC capital—with solid precedent exists for future research and development to yield results within just 18 to 24
$1.6 billion invested during the same period. months. And as model capabilities continue to advance, new business models and applications
will likely emerge, including exciting experiments with video, voice, scientific publications, and
• Lower training costs and advances in research propel in-house teams and startups. The databases. However, it is crucial to ensure that foundation models have guardrails in place to
declining cost of foundation model training and usage, along with advances in artificial guarantee trustworthy outcomes. For startups looking to take on industry incumbents, the
intelligence & machine learning (AI & ML) research, is driving the industry forward, making keys to success will be user experience, customization, and access to proprietary data.
it possible for both in-house research teams and research-oriented startups to thrive. With
hardware optimization and customized software, competitive foundation models can now be • The generative AI market is expected to grow, with a multitude of enterprise applications.
trained at significantly lower costs. As more AI researchers move from academia to the private Generative-relevant use cases already present a significant enterprise opportunity, estimated
sector, companies will compete for talent, and startups that simultaneously dedicate resources to reach $42.6 billion in 2023, with natural language interfaces offering the largest market due
to model and product development will be more competitive. to customer service and sales automation use cases. We expect the market at a 32.0% CAGR
to reach $98.1 billion by 2026, even without accounting for the potential of generative AI to
• Hyperscalers investing heavily in startups. Cloud providers recognize that leading innovation expand the total addressable market of AI software to consumers and new user personas in
in generative AI algorithms comes from startups; these providers are both making significant the enterprise.
acquisitions and striking generous partnerships to align themselves with the future of creative

Vertical Snapshot: Generative AI CONFIDENTIAL. NOT FOR REDISTRIBUTION. PG 3

 Generative AI timeline General model research Image / video models Text models Business events

December 1997
Two computer scientists, Sepp December 2013
Hochreiter and Jürgen Schmidhuber, Diederik P. Kingma and Max Welling June 2016
invent Long Short-Term Memory (LSTM) publish a paper on VAEs.6 VAEs Style Transfer, a deep
networks, which improves memory deconstruct input data into code, July 2015 neural network that
capacity in neural networks and thus known as the latent space, and then Google’s DeepDream can transfer the style of
allows for faster and more precise construct new, representative data June 2014 model for image one image to another,
pattern recognition in training data.6 out of the latent space. Ian Goodfellow invents GANs.6 generation is launched. 7 is released.7
1997

2012

2013

2014

2015

2016

2017
2012 January 2014 March 2015 December 2015 June 2017
A seminal year in deep learning research that enables significant Google acquires DeepMind, an AI Researchers Jascha Sohl- OpenAI is founded as a Google researchers release
advances in computer vision, speech recognition, and natural research lab based in the UK. Dickstein, Eric A. Weiss, Niru non-profit, open-source “Attention Is All You Need” paper
language processing.5 These accomplishments are best signified Maheswaranathan, and Surya research lab. on transformer models, a type of
by AlexNet, a convolutional neural network (CNN) trained on Ganguli introduce diffusion neural network architecture that
graphical processing units (GPUs) and developed by researcher models.6 These models apply lends attention to context and
Alex Krizhevksy. AlexNet was the first model to break 75% noise to an image until it is syntax.8 This allows for immense
accuracy, identifying images from a 14-million-image manually incomprehensible, then gradually strides in natural language
tagged database known as ImageNet. reduce the noise in the image and processing and understanding.
thus learn how to generate actual
images from noise.
5: “2012: A Breakthrough Year for Deep Learning,” Medium, Bryan House, July 17, 2019.
6: “The Generative AI Revolution Has Begun—How Did We Get Here?,” Ars Technica, Haomiao Huang, January 30, 2023.
7: “Timeline of Text-To-Image Machine Learning Models,” Fabian Mosele, n.d., accessed March 9, 2023.
8: “Timeline of AI and Language Models,” Life Architect, Alan D. Thompson, n.d., accessed March 9, 2023.

Vertical Snapshot: Generative AI CONFIDENTIAL. NOT FOR REDISTRIBUTION. PG 8

 GENERATIVE AI TIMELINE
General model research Image / video models Text models Business events

March 2019
June 2018 OpenAI announces July 2019
OpenAI releases GPT that it has moved Microsoft invests November 2020
(Generative Pre- from a nonprofit $1 billion into May 2020 AlphaFold wins the CASP
Trained Transformer), December 2018 to “capped-profit” OpenAI and signs GPT-3 is released competition by a large margin
ushering in a new NVIDIA’s StyleGAN business model in an exclusive with 175 billion and is recognized by organizers
era of large language is able to generate February 2019 order to attract more partnership with the parameters, 100 as a solution to the “protein-
models. hyper-realistic faces. GPT-2 is released. investors.9 research startup. times that of GPT-2. folding problem.”10
2018

2019

2020
November 2018 December 2018 March 2019 July 2019 October 2019 September 2020
Google releases its Google and DeepMind’s Chinese company Baidu Baidu releases Google applies GPT-3 writes a newspaper
Bidirectional Encoder AlphaFold, a protein releases its answer to ERNIE 2.0, which its BERT model column in The Guardian.
Representations for structure prediction Google’s BERT: Enhanced outperforms to searches—
Transformers (BERT). model, places first in the Representation Through Google’s BERT. demonstrating
Critical Assessment of Knowledge Integration semantic search
Protein Structure (CASP) (ERNIE 1.0). capabilities.
competition.

9: “OpenAI Shifts From Nonprofit to ‘Capped-Profit’ to Attract Capital,” TechCrunch, Devin Coldewey, March 11, 2019.
10: “DeepMind’s Protein-Folding AI Has Solved a 50-year-old Grand Challenge of Biology,” MIT Technology Review, Will Douglas Heaven, November 30, 2020.

Vertical Snapshot: Generative AI CONFIDENTIAL. NOT FOR REDISTRIBUTION. PG 9

 GENERATIVE AI TIMELINE
General model research Image / video models Text models Business events

April 2022 July 2022

OpenAI releases Dall-E 2. Shortly The French National Center for Scientific
January 2021 June 2021 thereafter, Boris Dayma releases Research debuts BigScience Large
OpenAI launches Dall-E, its GitHub, a subsidiary of an open-source but unaffiliated Open-Science Open-Access Multilingual
text-to-image model, along Microsoft, announces its version called Dall-E Mini. Dayma’s Language Model (BLOOM) on the
with the open-source version code-completion Copilot model eventually changes its May 2022 platform HuggingFace. With 176 billion
September 2022
of the model: Contrastive tool. GitHub Copilot is built name to Craiyon to avoid any legal Google releases its parameters, BLOOM is larger than GPT-3 NVIDIA releases
Language–Image Pre-Training on OpenAI’s Codex, which disputes. Craiyon becomes rapidly answer to Dall-E, and also completely open-source. It Get3D, a 3D-shape
(CLIP). This enables a flood of is trained on 54 million December 2021 popular due to its accessibility Imagen, though goes beyond Meta’s OPT by being freely generator trained
text-to-image models. public GitHub repositories. Baidu releases ERNIE 3.0. and through memes. not to the public. available for research or commercial use. only on 2D images.
2021

2022
May 2021 November 2021 March 2022 April 2022 May 2022 July 2022 September 2022
Google announces Language Microsoft announces MidJourney, a text-to- Google releases its Meta releases its Open Research startup Meta announces
Model for Dialogue Applications NÜWA, a multimodal image model offered 540 billion parameter Pretrained Transformer Stability.ai launches Make-A-Video, its
(LaMDA), its transformer-based model for text-to-image through a Discord server, Pathways Language (OPT) model, a totally Stable Diffusion, an text-to-video model.
large language model. and text-to-video. moves into open beta. Model (PaLM), a open-source LLM, to the open-source text-to-
multifunctional public. Details about image model.
language model. the model’s training are
also released. Access is
available upon request,
but the license limits
usage of the model to
research purposes.

Vertical Snapshot: Generative AI CONFIDENTIAL. NOT FOR REDISTRIBUTION. PG 10

GENERATIVE AI TIMELINE
General model research Image / video models Text models Business events

February 2023
Microsoft releases a limited beta
upgrade to its Bing search system,
January 2023 with new capabilities such as
October 2022 November 2022 Microsoft announces a “multiyear, summarization and chat based on February 2023
Google launches Stability.ai and Amazon multibillion-dollar” investment in February 2023 ChatGPT. GPT is also integrated into Google announces BARD,
text-to-video model Web Services announce OpenAI and exclusive integration AWS and Hugging Face other Microsoft products including its answer to ChatGPT,
Imagen Video. a partnership. with its Azure cloud system.11 announce partnership. Teams and its Edge browser. for limited beta testing.

2023

November 2022 February 2023 February 2023 March 2023 March 2023
OpenAI announces ChatGPT, a Runway, an AI research lab, Google invests $300 million into Anthropic, a research Google announces OpenAI releases
powerful chatbot tool running announces its Gen-1 model that startup made up of former OpenAI employees. generative tools GPT-4.
on the GPT-3.5 model. It soon allows for style transfer across videos. Anthropic calls Google its “preferred cloud provider.”12 to be integrated
becomes the most quickly into workplace.
adopted tech product in history.

11: “Microsoft Announces New Multibillion-Dollar Investment in ChatGPT-Maker OpenAI,” CNBC, Ashley Capoot, January 23, 2023.
12: “Google Invested $300 Million in AI Firm Founded by Former OpenAI Researchers,” The Verge, James Vincent, February 3, 2023.

Vertical Snapshot: Generative AI CONFIDENTIAL. NOT FOR REDISTRIBUTION. PG 11

 PitchBook Data, Inc.
John Gabbert Founder, CEO

Nizar Tarhuni Vice President, Institutional Research and Editorial

Paul Condra Head of Emerging Technology Research

About PitchBook Additional research

Emerging Tech Research

Eric Bellomo Ali Javaheri
[email protected] [email protected]
Gaming Emerging Spaces
E-Commerce
Robert Le
Brendan Burke [email protected]
Independent, objective and timely market intel [email protected] Web3/DeFi
Internet of Things Insurtech
Information Security Crypto
As the private markets continue to grow in complexity and competition, it’s essential for Artificial Intelligence & Machine
investors to understand the industries, sectors and companies driving the asset class. Learning John MacDonagh
[email protected]
Aaron DeGagne Carbon & Emissions Tech
Our Emerging Tech Research provides detailed analysis of nascent tech sectors so you can better [email protected] Clean Energy Tech
navigate the changing markets you operate in—and pursue new opportunities with confidence. Medtech
Digital Health Rebecca Springer
[email protected]
Alex Frederick Healthcare Services
[email protected] Healthcare IT
Agtech
Foodtech Rudy Yang
[email protected]
Jonathan Geurkink Fintech
©2023 by PitchBook Data, Inc. All rights reserved. No part of this publication may be reproduced in any form or by any [email protected]
means—graphic, electronic, or mechanical, including photocopying, recording, taping, and information storage and Supply Chain Tech Coming soon
retrieval systems—without the express written permission of PitchBook Data, Inc. Contents are based on information Mobility Tech Biotech
from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Nothing herein should be Pharma Services
construed as any past, current or future recommendation to buy or sell any security or an offer to sell, or a solicitation of Derek Hernandez
an offer to buy any security. This material does not purport to contain all of the information that a prospective investor [email protected]
may wish to consider and is not to be relied upon as such or used in substitution for the exercise of independent judgment. SaaS