Bay Area AI Funds Defy National VC Pullback
Overall venture capital is 25% of 2022 total, but gen AI funds are thriving.
After record years in 2021 and 2022, venture capital has pulled back dramatically in 2023. During the first three quarters of this year, VC firms only raised about $43B, according to PitchBook.
Venture capital fundraising peaked in 2022 at about $163B, up from $154B in 2021. Even in the depths of the pandemic, in 2020, VC firms were able to generate more than $93B.
The VC tally for 2023 is not expected to top $57B. However, despite this limited fundraising activity, one red-hot sector is driving the growth of VC funds this year: generative AI.
Nowhere is this more evident than in what rapidly has become the world’s leading generative AI hub, the Bay Area in general and San Francisco in particular. During the past week, two Bay Area VC firms have reported generating a total of nearly $4.4B for funds targeting AI startups.
Menlo Ventures, a San Francisco-based VC firm, has raised $1.35B for funds targeting AI; down the Peninsula in Menlo Park, Khosla Ventures is approaching a $3B tally across three funds that focus on AI startups, according to a report in BayAreaInno.
Menlo Ventures is dividing its war chest across two funds, an early-stage fund called Menlo XVI and an early-growth fund it is calling Menlo Inflection III, with both funds focused on AI startups, according to a report in Bloomberg News.
Menlo Ventures previously has backed fintech startups Chime and Harness, as well as consumer apps including Uber and Roku. The VC firm also was an early backer of Anthropic, a primary competitor of ChatGPT pioneer OpenAI.
The generative AI boom in San Francisco is creating a surge in new hires that office landlords hope will be the beginning of the end of the malaise in the city’s office sector, which has seen vacancy rates hit 34% this year.
Late last month, OpenAI agreed to the largest office lease deal in San Francisco since 2018. The chatbot maker will be moving into 486K SF in two of the four buildings that make up Uber’s Mission Bay headquarters campus.
OpenAI will occupy buildings at 1455 Third Street and 1515 Third Street. The two glass-sheathed buildings are connected by skyway pedestrian bridges on the third floor.
An Uber spokesperson told the San Francisco Chronicle that the ride-sharing giant will continue to operate the other two buildings at the headquarters complex, 1655 Third Street and 1725 Third Street.
“The remaining buildings contain more than enough capacity for current Uber employees in San Francisco, with sufficient room to grow. We also plan to expand our Sunnyvale campus,” the Uber spokesperson told the newspaper.