Generative AI startups secure over $3.9Bn in Q3 2024 funding

Venture capital (VC) funding for generative AI startups reached $3.9 billion across 206 deals in Q3 2024, according to PitchBook. U.S.-based companies secured $2.9 billion of that total in 127 deals. Notably, this figure does not include OpenAI’s $6.6 billion round.

Key beneficiaries in Q3 2024 included Magic, a coding assistant that raised $320 million in August, Glean, an enterprise search provider that secured $260 million in September, and Hebbia, a business analytics firm that raised $130 million in July. China's Moonshot AI and Japan’s Sakana AI also raised $300 million and $214 million, respectively.

While some experts question generative AI’s reliability and legality, especially concerning models trained on copyrighted data, many investors are optimistic. Venture capitalists are betting that generative AI will eventually take hold in major industries, despite current challenges.

A Forrester report predicts that 60% of generative AI sceptics will eventually embrace the technology, particularly for tasks like summarisation and creative problem-solving. This is more optimistic than Gartner's earlier prediction that 30% of generative AI projects would be abandoned by 2026.

One of the primary hurdles for generative AI is its vast computational requirements. Bain analysts project that generative AI could drive companies to construct gigawatt-scale data centres, which would consume up to 20 times more power than current facilities, stressing labour and energy resources.

The increased demand for data centre power, driven by generative AI, is extending the lifespan of coal-fired plants. Morgan Stanley estimates that if this trend continues, global greenhouse gas emissions by 2030 could triple compared to a scenario without generative AI.

In response to rising power needs, major tech companies such as Microsoft, Amazon, Google, and Oracle have announced investments in nuclear energy to offset non-renewable energy use. However, it may take years for these investments to show results. Microsoft, for instance, has announced plans to source power from the Three Mile Island nuclear plant.

Despite potential negative environmental impacts, investments in generative AI startups continue unabated. ElevenLabs, known for its viral voice cloning technology, is reportedly seeking funds at a $3 billion valuation, while Black Forest Labs is in talks for a $100 million round to further its image generation technology.