Generative AI, the use of algorithms to create new content, is revolutionising the tech industry, and investors are noticing. According to a recent Pitchbook report, venture capital investments in natural language interfaces, 2D media, AI Core, and biotech start-ups have soared in recent years. Natural language interfaces and 2D media generation were the leading segments, capturing 29.3% and 18.8% of VC-backed deals, respectively, between 2018 and 2022. Within the natural language interfaces segment, chatbots, voicebots, and personal assistants captured $544.9 million in 2022, while avatars and video generation and editing accounted for 37.7% and 40.8%, respectively, of all VC money that is invested in the 2D media sector.
The declining cost of foundation model training and usage, along with advances in AI & ML research, is driving the industry forward, enabling both in-house research teams and start-ups to thrive. Competitive foundation models can now be trained at significantly lower costs, allowing start-ups to compete with industry leaders. Additionally, tech giants such as Microsoft and Alphabet are making significant acquisitions and developing ongoing partnerships with start-ups to align themselves with the future of creative software.
As generative foundation models continue to advance, new business models and applications will likely emerge, including exciting experiments with video, voice, scientific publications, and databases. However, it is crucial to ensure that foundation models have guardrails in place to guarantee trustworthy outcomes. For start-ups looking to take on industry leaders, the keys to success will be user experience, customisation, and access to proprietary data.
The generative AI market is expected to grow, with a multitude of enterprise applications. Natural language interfaces offer the largest market due to customer service and sales automation use cases, but we expect the market to reach $98.1 billion by 2026, even without accounting for the potential of generative AI to expand the total addressable market of AI software to consumers and new user personas in the enterprise.