Within the thriving AI ecosystem of Silicon Valley, Generative AI startups are monopolizing the VC investments by attracting about 40%  ($11.9B out of $33.5B in the first six months of 2023). This percentage is destined to grow further with the recent Amazon-Anthropic $4B investment deal. According to the new Tech Scaleup Silicon Valley 2023 Report: The Rise of Generative AI” by Mind the Bridge with the support of Crunchbase presented yesterday at the Opening of the Scaleup Summit San Francisco, Silicon Valley remains the epicenter of innovation and it’s poised to play a central role in this new tech revolution.

Silicon Valley remains at the forefront of global innovation. Recent research developments in Artificial Intelligence and Machine Learning, spearheaded by Silicon Valley giants like Google, OpenAI, and Anthropic, have ushered in a new tech trend known as ‘Generative AI’. The applications of GenAI models span across diverse fields, including art, healthcare, entertainment, enterprise applications, and more”, commented Marco Marinucci, Founder and CEO of Mind the Bridge.

Silicon Valley Tech Scaleup Scene

In 2023, Silicon Valley boasts an astounding 9,642 scaleups, amassing a staggering $735 billion in total funding since their inception. With nearly 200 scaleups for every 100,000 residents and over three-quarters of the region’s GDP dedicated to the local scaleup economy, the region maintains an unparalleled lead over global innovation hubs. It takes the entire European continent to compete in terms of number of scaleups (11,206 vs 9,642). Notably, Israel – the “Startup Nation” – still accounts for less than a third of Silicon Valley’s scaleups (2,921).

Silicon Valley still also represents the global epicenter for corporate innovation: 331 Forbes 2000/Fortune 500 companies have established a stable innovation presence there, and this trend is gaining momentum. Additionally, 81 institutions from around 40 countries, including the European Union, are part of the thriving startup ecosystem in the Bay Area. 

For the first time, the count of “scalers” (scaleups raising over $100M) has exceeded 1,000, reaching 1,036. To illustrate, the US East Coast has 732 such scalers, while all of Europe hosts less than half. Silicon Valley houses 86 “super scalers” (over $1B raised), nearly one-third of the entire US.

Crunchbase data

Globally, investments into AI companies have sped up over the past decade: more than $300 billion in venture funding was invested in over 16,000 companies in the sector between January 2013 and Q3 2023, according to Crunchbase data.

As of Q3 2023, an estimated 1 in 4 venture dollars in the U.S. this year has gone to a startup that incorporates artificial intelligence in its business.The productivity gains generative AI will enable could be profound,” said Gené Teare, Senior Data Editor at Crunchbase News. “Sectors that stand to benefit include health care, product and engineering, cybersecurity, robotics, marketing, design and law and research, among others.”

(Generative) AI Scaleups 

As of the first half of 2023, Mind the Bridge research has identified a total of 2,101 AI scaleups in the region (22% of total), 350+ of which (17%) specializing in Generative AI. The cumulative capital raised by AI scaleups in Silicon Valley amounts to a substantial $143.7B (20% of total). These numbers paint a compelling picture, hinting at the existence of an estimated 2,000 to 2,500 early-stage AI startups, each with funding levels below $1 million, quietly shaping the innovation narrative in the heart of Silicon Valley.

When it comes to the density of AI-focused scaleups within its entrepreneurial landscape, Silicon Valley dominates, but finds a relatively strong contender in South Korea, where one out of every four scaleups is dedicated to AI innovation. The UK and the EU, on the other hand, present relatively less mature AI scaleup ecosystems, the latter maybe influenced by the ongoing regulatory debate surrounding AI.

Possible concerns regarding the potential decline of Silicon Valley, coupled with reports of a supposed ‘exodus’ of Bay Area residents, now appear to be greatly exaggerated. Recent strides in AI technology, driven by tech giants and a multitude of thriving scaleups, signal the resurgence of Silicon Valley on the global stage. A new zone designated ‘Cerebral Valley’ is attracting AI startups from across the US and internationally, and expanding AI companies are growing their office footprint in the city”, ended Alberto Onetti, Chairman of Mind the Bridge. “Paradoxically in the current scenario, AI seems to be the one thing in the startup world that demands in-person. If an AI  startup today is not in San Francisco, it is likely at a disadvantage.”

In recent years, Silicon Valley’s AI scaleup sector has witnessed remarkable growth, notably surpassing the $10 billion funding mark in 2018 and maintaining this milestone until 2022. The standout year, 2021, saw an unprecedented $24.8 billion invested in local AI innovation, though 2022 experienced a noticeable dip, with total AI financing still substantial at $14.8 billion. Generative AI, almost non-existent until 2018, steadily attracted an annual average of $3 billion until 2023, driven by the monumental Microsoft-OpenAI deal, which amounted to $10 billion in January 2023. As of H1 2023, Generative AI scaleups secured an impressive $11.9 billion, surpassing other AI companies, which received a combined $3.2 billion.

While the future pace of change remains uncertain, one thing is evident: Generative AI dominates Silicon Valley’s AI scene, led by Foundational Model Makers and AI Chipset Designers, both pivotal in advancing the technology. The Report identified significant industrial applications in Enterprise, Industry, Security, Legal, Content Generation, and Healthcare.